HOLLIE SHAW
The Vancouver Sun
Canada is losing more than a billion dollars a year in overlooked taxes and duties on goods that Canadian consumers buy online from foreign retailers, according to a new study.
The analysis from Copenhagen Economics found a broad discrepancy in how customs treats packages imported using postal carriers and those transported via express services such as UPS or Federal Express.
The consulting firm’s research, commissioned by UPS, found that sales tax is collected on just 25 per cent of e-commerce postal imports into Canada, whereas express operators collected sales tax on 100 per cent of the shipments. Import duties were collected on only six per cent of e-commerce postal imports, while express operators collected 98 per cent.
“The incomplete collection of sales tax and import duty on postal shipments inbound into Canada is estimated to cause a loss of Canadian public-sector revenue of up to $1.3 billion per year,” says the report, released Thursday, which says postal services handle 46.5 per cent of such imports.
Copenhagen Economics based its data on an experiment it conducted between August and October 2016, when it made 200 international online purchases from Canadian addresses. The packages from China, France, Japan, U.K. and U.S., were all subject to sales taxes and import duties as their prices were higher than the legal $20 Canadian “de minimis” threshold on imports.
Half of the ordered items were shipped using national postal operators in the country of origin to Canada Post, and half were shipped through express carriers such as FedEx and UPS.
To arrive at the $1.3 billion in lost government revenue figure, Copenhagen Economics tied an estimate for sales taxes and duties to a projected value on Canadian e-commerce imports. It used an estimate of $30 billion in 2016 for Canadian online retail sales, with 70 per cent of that spent on nonCanadian e-commerce sites and 96 per cent of purchases subject to duty and sales tax.
The $30 billion estimate is high among Canadian industry estimates, as is the estimate that 70 per cent of those online sales go to foreign retailers. StatsCan reported that Canadian e-commerce sales were $19.2 billion in 2016, with about 60 per cent of the purchases made from domestic retailers and 40 per cent from foreign retailers. Industry reports peg the figure at closer to $22 billion, perhaps accounting for uncaptured postal shipments.
“Even if the number is hundreds of millions a year in lost revenue rather than $1.3 billion, that would be significant for the provinces and the federal government and for Canada Post,” said Karl Littler, vice-president at the industry association Retail Council of Canada.
He said the study’s methodology is sound and helps to substantiate widespread anecdotal reports about incoming e-commerce shipments. “There is a vulnerability for Canadian merchants generally if a bunch of stuff is coming in tax and duty free, and for online merchants in particular. From our merchants’ perspective, that is an unlevel playing field.”
If consumers search for goods online and find them priced cheaper at a foreign retailer than at a Canadian one, Littler said, they will be more motivated to buy internationally if they believe they do not have to pay taxes or duties.
Canada Post officials said in an emailed statement that the mail carrier “collects and remits all duties and taxes we are required to collect as instructed by the Canadian Border Services Agency (CBSA).”
Littler noted that the CBSA “sets an unofficial de minimis level in keeping with their capacity to process parcels.
“If it’s a $1,000 item you are almost certain to pay duties and taxes. If it is a $50 item, you are highly unlikely to pay duties and taxes.
“There is a greater incidence of collection the higher up the value scale you go.”
The study found that postal sales tax collection was higher (52 per cent) on more expensive items, averaging about $200, versus lower priced items, where it was collected on three per cent of items.
The CBSA said it would provide a comment when it has “thoroughly reviewed” the study.
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