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Digital services tax still part of the plan, says Freeland, but timing unclear

OTTAWA — Finance Minister Chrystia Freeland is pushing back against the idea that the federal government is wavering on its Jan. 1 timeline for implementing a new digital services tax.

Language in last week's fiscal update suggested the government wanted some flexibility in the timeline for when the tax would go into effect.

Freeland insists the government's position on the controversial measure remains unchanged, although she did not explicitly say if the tax would take effect early next year, as originally planned.

The three per cent levy, aimed at foreign digital services companies that profit off Canadian audiences, is deeply unpopular in the United States, where critics say it unfairly targets the U.S. tech sector.

Freeland says Canada's preference has always been to be part of an international tax framework that is still under development, but also that it would not wait until any later than 2023.

The tax is just one of a suite of measures from the fall economic statement that the government is taking steps to enact with a so-called ways and means motion introduced on Tuesday.

The fiscal update itself noted that forthcoming legislation "would allow the government to determine the entry-into-force date" of the new tax.

"Our government's position is unchanged," Freeland said when asked about the timing of the tax, describing the motion as "the next step" on the path towards fairness.

"Other countries — our partners and allies, like the U.K., like France — currently have a DST in place. And that DST is raising much-needed revenue to support the British people, to support the French people."

Critics, including members of Congress and David Cohen, the U.S. ambassador to Canada, have been urging Ottawa to put the tax on hold to allow the Organization for Economic Co-operation and Development more time to get its global framework in place.

Freeland's update last week insisted that Canada would continue to work with its international partners to implement a multilateral taxation system "as soon as a critical mass of countries is willing."

"We always prefer finding a win-win outcome," she said on Tuesday.

"And that is the case here, and we have been having constructive conversations with all our partners."

The digital services tax, which takes effect in January, is deeply unpopular with Canada's most important ally and trading partner, says Goldy Hyder, president and CEO of the Business Council of Canada.

And those tensions are mounting at a time of growing international instability, when the country's relationship with like-minded allies such as the U.S. should be a top priority, Hyder writes in a new letter to the prime minister.

Instead, Canada should agree to U.S. demands that the tax be held in abeyance until a global taxation framework being developed within the OECD can be introduced.

"Canada's economic interests will be severely harmed if Canada continues to defy the overwhelming OECD consensus," Hyder writes in the letter, a copy of which was provided to The Canadian Press.

"Amid growing economic uncertainty around the globe, Canada cannot afford a costly trade war with our most important trading partner."

This report by The Canadian Press was first published Nov. 28, 2023.

The Canadian Press