Canada Finding It Difficult To Tax E-Commerce

by Mike Godfrey, Tax-News.com, Washington

05 April 2002

A draft Canada Customs and Revenue Agency (CCRA) discussion paper uncovered by an Ottowa researcher has revealed that the agency is finding it 'increasingly difficult' to tax online transactions.

The document, entitled 'The Impact of E-Commerce on the Canadian Tax Base', warns that: 'It does appear, on the surface at least, that e-commerce will cause the world of taxation to spin out of control.'

Several criteria for reducing tax evasion, such as being able to identify and verify taxpayers and their transactions, are mentioned in the paper, but the CCRA admits that: 'these...requirements are increasingly difficult to implement given the nature of the internet'.

In the discussion document, the revenue authority warns that the Canadian government will have to amend the Income Tax Act, and look again at its tax collection policies, if it is to effectively prevent Canadian purchasers of online goods and services from avoiding tax by encrypting their transactions or registering themselves or their business in a province or country with lower taxes.

No estimate of the amount lost to the Canadian authorities as a result of e-commerce tax evasion was included in the draft paper. However, tax experts believe that the figure is not likely to be huge as yet, given the relatively fledgling status of e-commerce.

In the discussion document, however, the CCRA suggests that the industry to watch in terms of tax evasion developments is the music industry, where online consumers are able to download digital music for free, thus avoiding sales taxes and copyright fees.

Recommended