Thank you, Madam Chair.
I will be making my presentation in English but will be pleased to answer your questions in French.
Thank you for the opportunity to appear here to talk about the Auditor General's report on the taxation of e-commerce. I am joined by Ted Gallivan, our assistant commissioner of the compliance branch.
As the Auditor General just said, in the report the AG acknowledged that the CRA had limited legislative authority to implement some best practices we see in other jurisdictions, such as simplified registration or requiring digital platforms for non-residents to register for and collect GST and HST. Within that context, the AG made two recommendations to the agency. We accepted both of them.
First, the Auditor General recommended that within its legislative authority, the CRA expand its compliance activities and leverage available third party data to enhance its ability to detect and deter GST and HST non-compliance in e-commerce. Second, the Auditor General called on the CRA to implement mechanisms to track and report on the number of compliance activities it conducts to manage the risk of non-compliance in e-commerce.
The agency agreed with both recommendations and prepared and advanced a detailed action plan with timelines. Today I would like to report to you on our achievements thus far.
First, the agency designs its compliance activities in alignment with the level of non-compliance and tax dollars at risk. In the past, efforts to address non-compliance, including educating taxpayers of their GST and HST obligations and conducting audits, allowed the agency to ensure that the focus remained on files with the highest risk of non-compliance, while promoting a fair tax system for all Canadians. Within the confines of the legislation, we believe our level of compliance actions in the e-commerce sector were commensurate with the level of risk identified. However, as the Auditor General indicated, e-commerce has grown rapidly over the last few years, and has increased more substantially in specific sectors during the pandemic as a result of non-essential businesses being ordered to close. The agency developed an action plan to monitor and assess the elevated risks on an ongoing basis.
With respect to recommendation one, the agency developed a comprehensive compliance strategy, which will be finalized next month, December 2020, as committed to the Auditor General. The strategy will support the agency's efforts at better detecting and addressing non-compliance for GST and income tax. This work also led to the identification of the platform economy, where platform operators use technology such as the Internet to connect buyers and consumers with sellers and service providers.
More precisely, four categories of platforms have been identified, including the sharing economy, the gig economy, person-to-person sales, and social media influencers. Each category contains unique risks requiring tailored compliance interventions commensurate with the identified risks. Our strategy provides detailed plans to deal with the risk posed by these sectors.
The agency also reviewed actions undertaken by other jurisdictions to address tax challenges in this sector. As a result of this work, compliance risks emerging from the platform economy and e-commerce were identified.
The agency will also expand its compliance actions by better leveraging third party data to identify and address non-compliance. An effective tool in leveraging third party data is the “unnamed persons requirements”, or UPR. This type of requirement is authorized by the courts and enables the CRA to obtain information from an individual or a company about third parties.
With respect to the second recommendation, the agency has already started to produce more strategic performance indicators, such as the tax gap estimates. In December 2019 the agency completed an analysis of its tracking and monitoring methodology with respect to the compliance activities it conducts to manage the risk of non-compliance in e-commerce, including the platform economy.
While the agency conducted audits on e-commerce files in the past, these compliance actions were included in regular audit program results and were therefore not tracked and monitored separately. As a result of this analysis, new tracking and monitoring mechanisms and procedures have been developed and are being implemented early in the new year to help with analyzing results from these audits.
In light of these measures included in the action plan, I'm pleased to report that the agency has already achieved a number of its commitments identified in the action plan provided in response to the report. We are well under way to meeting the remaining deliverables.
Thank you, Madam Chair. I'll be happy to answer the questions.