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Canada Counts Revenue Lost On E-Commerce Imports

by Mike Godfrey, Tax-news.com, Washington

06 March 2017

The Canadian Government is losing up to CAD1.3bn (USD972m) in revenue a year through the incomplete collection of sales tax and import duty on e-commerce imports, according to a new report by Copenhagen Economics.

According to the report, "the missed collection of sales tax and import duty on e-commerce inbound postal shipments results in a significant loss of public revenue to Canada. Moreover it distorts competition between Canadian retailers and foreign competitors. Finally, it distorts the competition between postal and express operators."

Copenhagen Economics was commissioned by UPS to examine the extent to which e-commerce shipments to Canada are correctly processed upon import. It researched whether there is a difference in compliance with customs-related processes (sales tax and import duty) for international shipments inbound to Canada, depending on the type of operator used (i.e. postal or express carrier). In addition, it investigated the impact of any difference on public sector revenue.

Copenhagen Economics conducted an experiment involving a fully completed e-commerce transaction for 200 online purchases. These packages were shipped by e-sellers from five key Canadian trading partners (China, France, Japan, the UK, and the US), and contained general consumer goods, all of which are subject to sales tax and import duty under Canadian laws. For each of the shipments, Copenhagen Economics observed whether sales tax or import duty were collected in the customs clearance process. It also ran a separate experiment regarding controlled goods and compliance in the customs treatment of such imports.

The study found that there is a "statistically significant difference in customs compliance depending on whether the shipment is carried by a national postal operator or an express carrier." It said that sales tax is collected on only 25 percent of postal shipments imported into Canada, whereas express operators collected on 100 percent of shipments. Import duty is collected on only six percent of postal shipments imported into Canada, compared to 98 percent of express shipments.

"The lack of application of sales tax makes goods coming from outside Canada cheaper than comparable items purchased by Canadian consumers from Canadian sellers (both online and offline). This gives an advantage to manufacturers and sellers located outside Canada, relative to their Canadian competitors, when a postal operator is used to deliver the goods. The lack of application of import duty fails to implement the applicable legislation, in a way that ends up favoring non-Canadian manufactures and sellers," the report explained.

TAGS: compliance | tax | sales tax | tax compliance | commerce | public sector | law | goods and services tax (GST) | China | United Kingdom | e-commerce | legislation | Canada | France | United States | import duty | retail | Japan | services

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