Public Accounts Committee on Dec. 3rd, 2020

[The Chair, Conservative, Kelly Block]

Absolutely. Thank you, Mr. Berthold.

We will now move to Mr. Blois for five minutes.

[Kody Blois, Liberal, Kings—Hants, NS]

Thank you, Madam Chair.

I'd like to thank all the witnesses for being here today. Again, this is an important topic.

I'd like to thank Mr. Blanchette-Joncas for bringing forward this motion to make sure that we can talk about the good work that the government is implementing on this front, because I think it's very important.

Before I go any deeper, I'd like to echo the comments of Mr. Sorbara.

Mr. Rochon, thank you very much for your public service and your work, and all the best of luck in your future endeavours.

I want to personalize this a bit. As the member of Parliament for Kings—Hants, of course I work closely with community stakeholders. One of those is a gentleman named Stephen Shaw, who is the executive director of the Hants-Kings CBDC, the community business development corporation. He works closely with a lot of small businesses and retailers, and for a number of months, since I was elected last year, we've been having conversations about trying to make sure that we have an equitable playing field for retailers and small businesses. I certainly appreciate the proposals that are in the fall economic statement.

I want to start my questions with you, Mr. Rochon. What types of legislative changes are needed to be able to move some of these proposals forward? I assume that they're nuanced and that there are different ones, but as quickly as you can, what are we looking at in terms of how we move this forward?

[Paul Rochon]

My colleague Mr. Marsland can answer in more detail, but it requires legislation, and that is moving forward now.

[Andrew Marsland]

Just to be clear on that, we released in the fall economic statement draft legislative proposals with a view to seeking input on them from interested parties, and then I would imagine that the proposed approach is to have this legislated before July 1, 2021, assuming that Parliament accepts that.

[Kody Blois, Liberal, Kings—Hants, NS]

Okay. We know that there will probably be a vote on the different elements in the fall economic statement, so we appreciate that.

The last time we had a conversation on this topic in this committee, we talked about the different mechanisms that were in place, and one of the pieces was asking couriers to basically value the product and to levy some level of tax, because some of these measures weren't in place.

Perhaps this is a question for Mr. Hamilton or Mr. Ossowski. How is this going to impact on the border in terms of requiring companies to register? I assume that will actually make the border transition even easier, such that the Border Services Agency would not be required to check packages. This obligation is being placed on individual vendors that are competing or selling their products in Canada. Am I correct in saying that?

[John Ossowski]

Perhaps I could start.

From our perspective on the framework that was outlined in the economic statement, the impact for us is just simply ensuring that duties and taxes continue to be levied at the border. All goods that are imported into Canada will continue to be subject to all applicable duties and taxes on the value of goods at the time of the importation.

We would work with our colleagues from the Department of Finance on the point that my colleague Andrew Marsland pointed out in terms of the determination of the final retail price. Certainly, with the courier low-value shipment program, we rely on the courier to collect the appropriate duties and taxes when the goods come into the country. That's a bit of separate issue compared to the issue here in terms of these fulfillment centres and that potential gap.

[Kody Blois, Liberal, Kings—Hants, NS]

How does that interplay? You mentioned the low-value courier shipment program, and CUSMA was just ratified. How do some of the proposals in the fall economic statement interplay with our existing trade agreements, in which there might have been some provisions to allow low-value shipments in? Is that going to be superseded? What's the interplay there, to help inform a parliamentarian in that regard?

[John Ossowski]

I might defer to my colleague at the Department of Finance on that one. I'm not aware of any impacts on the courier low-value shipment program per se.

[Kody Blois, Liberal, Kings—Hants, NS]

Okay.

Perhaps Mr. Rochon or Mr. Marsland could answer.

[Andrew Marsland]

I think part of the answer is that there's no direct relationship, but there is a kind of indirect relationship in the sense that we've seen over the past years a growth in the business models whereby sales are fulfilled through a warehouse or a facility in Canada on behalf of non-resident vendors.

I think part of that is reflecting a diversion from what would have been low-value packages coming over the border individually to bulk shipments into a warehouse in Canada. Then sales are fulfilled out of that warehouse. The core of this proposal is to ensure that in those circumstances, which seems to be a growing trend.... Clearly it's a growing trend that is displacing other sales that may have come across the border individually, which creates challenges when they do, which is outlined in the Auditor General's report. I think there is an indirect and very clear relationship between the two.

I hope that answers the question.

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Marsland.

We will now move to our two-and-a-half-minute round, starting with Mr. Blanchette-Joncas.

[Maxime Blanchette-Joncas, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Madam Chair.

I'll summarize the current situation to make sure that I've understood it.

After that my questions will be for Mr. Rochon.

At the moment, the Minister of Finance is responsible for establishing a fiscal balance. According to the report of the Auditor General of Canada, based on the 2017 audit, there is a fiscal imbalance because the federal government has foregone $169 million in lost GST revenue by failing to tax digital products.

This places Canadian suppliers at a disadvantage, even though the government claims it would like to support them. People buy online because of the lower cost. Sixty-two per cent of Canadian consumers say they make purchases online. Online businesses are mainly located outside of Canada, and this enables them to buy at lower cost.

This practice leads to a fiscal imbalance because the federal government can't require foreign suppliers to collect sales taxes under the current e-commerce taxation measures. There are therefore job losses at vendors who carry out their operations from physical locations in Canada and Quebec. This leads to an economic imbalance because there's less money coming into government coffers. The federal government therefore has to decide whether to make cuts to public services or increase taxes.

I'm trying to understand, Mr. Rochon. Is my reading of the situation correct? Are there other factors relative to the fiscal balance and the tax base that need to be explained in more detail?

[Paul Rochon]

Basically, you've provided a good summary of the objectives of the measures described in the update.

[Maxime Blanchette-Joncas, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Rochon.

According to Mr. Philippe Le Goff, Principal at the Office of the Auditor General, it's up to the federal minister of finance to decide on how to remedy the situation, even though this situation has been known for a number of years. In 2017, foregone GST revenue totalled $169 million. Unfortunately, we don't know how much additional money could have gone into government coffers.

Mr. Le Goff also said that the government had not made the decision to enhance e-commerce practices in Canada. In his view, this is a systemic problem that should be closely examined by the Trudeau government to restore tax fairness between Canadian businesses and those outside the country.

I want to understand why we are prepared to take action now, but were not in the past? It's a situation that ought not to be repeated. It appears to be a question of tax fairness.

What can we do to prevent a scenario like this from happening in the future?

[The Chair, Conservative, Kelly Block]

Give a very short answer, please.

[Paul Rochon]

For a proper analysis, we need to look at how the situation developed and to have the kinds of discussions we're having today in this committee to accurately identify the issues.

[The Chair, Conservative, Kelly Block]

Thank you very much.

We will now go to Mr. Boulerice.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you very much, Madam Chair

Unsurprisingly, I would like to return to the whole question of tax fairness in the taxation of products and services.

I'd like to look at it from a slightly different angle. To your knowledge, are there any Quebec or Canadian businesses or vendors that have decided to relocate their activities abroad in recent years so that they could benefit from a tax advantage because consumers would not have to pay GST on the products they would be sending to Canada?

Has tax inequity forced entrepreneurs to conduct their activities outside of Canada because it would give them an advantage?

[Andrew Marsland]

I don't think we're aware of specific examples of businesses having left the country. Clearly, when there is a weakness in the system, it creates potential for distortion, and I think that is one important reason that the government is moving forward with these measures: It's to ensure that as business models change, the sales tax system adapts and effectively collects the tax that should be collected on consumption in Canada.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you, Mr. Marsland.

I fully agree with that, but would like to come back to the question I tried to ask earlier.

How are you going to, very concretely, require businesses like Apple or Amazon to charge the GST? Which companies will be included as of January 1 in the measures requiring the application and collection of the GST? Will these measures apply only to retail trade or will they also include foreign vendors that deliver digital content, like Netflix?

[Andrew Marsland]

Perhaps I could answer that question by referring to the experience of other countries.

I'll begin with the work done at the OECD over many years to develop a framework, a common framework, to do this. That framework is the one that the government is proposing to follow with respect to non-resident businesses such as the examples you gave. That framework has been applied in other jurisdictions, and the experience has been that there's been a high degree of compliance.

[The Chair, Conservative, Kelly Block]

Thank you.

[Andrew Marsland]

It is probably for good business reasons that businesses choose to comply with these requirements, but in the absence of voluntary compliance, then I think there will be steps taken to try to ensure compliance, in partnership with other countries.

[The Chair, Conservative, Kelly Block]

Thank you very much for that, Mr. Marsland.

We will now start our next round of questioning. It's a five-minute round, and we will go to Mr. Webber.

[Len Webber, Conservative, Calgary Confederation, AB]

Thanks, Chair.

Mr. Ossowski, first of all, thanks again for coming back a second time on this issue.

In your opening comments, you talked about the World Customs Organization and how the CBSA was involved in the working group in e-commerce, and you mentioned that you co-chaired it. I went to the website of the World Customs Organization and I was quite impressed with how extensive the website was, and in particular by the international collaboration that is going on. I would recommend that any member here go to that site to see just what is going on out there.

There's one thing that I just want to throw out there. It hasn't been brought up before. It is with regard to Bitcoin cryptocurrency. I know that payments are made on the Internet by Bitcoin and that it's ever-increasing as well. How does the CBSA value and trace and tax Bitcoin payments? I know it's a relatively new type of currency, but I know governments are concerned as well. Do you have any comments on that at all, Mr. Ossowski?