Why the government keeps spoiling your online bargains: Neil Macdonald
New study looks at what would happen if feds raised threshold for charging cross-border duties and taxes
As any Canadian who's ever naively bought anything on the American version of eBay (or, for that matter, any U.S. retail website) must by now know, Ottawa is determined to spoil your bargain.
If the purchase is a penny over $20 Cdn, a federal customs agent can intercept it, open it, delay it, add federal and provincial sales taxes, and, depending on the origin of the merchandise, perhaps pile on some duty charges — basically protectionist taxes.
By the time the government is done, the price of the package can easily rise by 50 per cent. And of course customs brokers usually have to wet their beaks, inflating the final cost of the average package by another 20, 30 or 40 per cent.
- U.S. duty-free limit for web purchases 40 times higher than Canada's
- 76% of Canadians shopped online last year
Basically, Ottawa has ensured that shipping across our border is such an expensive, paperwork-heavy pain that a lot of American merchants and eBay sellers simply don't bother shipping to Canada.
The system actually seems designed to be burdensome and sclerotic.
How else to explain the conclusion of a new study, carried out by three economists in Washington, that found by keeping that purchase threshold at $20 instead of giving Canadian shoppers a break and raising it to $80, Ottawa spends about $166 million to collect $39 million in additional taxes and duties.
Think about that: Ottawa's customs officials spend a net $127 million of taxpayers' money annually, basically to keep Canadians trapped inside the Canadian retail corral.
The study, released today after being peer-reviewed by the C.D. Howe Institute, was commissioned by eBay Canada, which has been lobbying Ottawa to raise its $20 threshold, known in the world of commerce as de minimis.
The Canadian de minimis is the stingiest in the developed world. It's so much lower than the equivalent American threshold as to be simply depressing — to consumers, at least.
Canada's $20 threshold was set in 1985, and hasn't budged since, not even after free trade agreements.
eBay and its allies, including courier services, Canadian businesses that bring in goods regularly from the United States or Europe, and of course consumers, whose spending power would rise dramatically with freer access to the American online market, would like to see it set much higher — say, $80, or even better, $200.
Spend dollars to collect dimes
The Ontario and Canadian chambers of commerce have complained that Canada's $20 bar gums up commerce at the border, effectively acting as a non-tariff barrier, which is of course exactly what it is.
It makes no sense, say those groups, to spend dollars to collect dimes.
Standing formidably on the other side of the question is the Retail Council of Canada, which, like the customs broking industry (and in all likelihood the union representing our busy-busy customs agents), wants the threshold to remain exactly where it is, preferably forever.
In a recent letter to members, Retail Council vice-president Dave Wilkes cites the fight over de minimis as "critical" and claims to have "successfully pushed back against this campaign, but we are keeping our guard up, and asking members to add their voice" by sending a pre-scripted letter to their local member of Parliament.
That anxiety stands to reason. There's no power like economic self-interest, and the current Canadian de minimis effectively shelters retailers here from ferocious American competition.
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But the Retail Council also points out an elementary unfairness: its members are forced to serve as tax collectors for both the federal and provincial governments. U.S. online retailers often don't collect taxes for any government; there is no federal sales tax in the United States, and state sales taxes are routinely and easily circumvented.
Raising the de minimis and allowing American online retailers to ship goods tax-free into Canada "would create an automatic 12.3 per cent tax disadvantage for our members," says Retail Council spokesman Karl Littler. "It is a matter of tax fairness."
Canadian retailers employ roughly 1.9 million people. They would inevitably experience big losses, collect less revenue for provincial and federal governments, and probably have to cut staff.
Christine McDaniel, chief economist at Sidley Austin LLP in Washington and co-author of the new study, says Ottawa needs to take the longer view — Canadian consumers would spend more on goods but also save more on duties and taxes if the de minimis was raised, which would generate growth. She further argues Canadian retailers would have to become more competitive, Canadian businesses would become more productive, and an impediment to smooth commerce between major trading partners would be removed.
Besides, Canadian shoppers who cross physically into the States already enjoy a much higher de minimis exemption from taxes and duty: $200 after 24 hours and $800 after two days. Why should people living far from the border who must rely on shipping be unduly penalized?
Canadian order of things
The answer is that raising de minimis would fiddle with the established Canadian order of things.
It is an article of faith in this country that maintaining a smaller, separate market carries a steep price, and consumers have to pay it.
Despite Treasury Board President Scott Brison's recent musings that "the e-commerce train has left the station, and not just in Canada, but globally," the very threat of retail job losses makes governments quail.
The push for a higher Canadian de minimis "failed in the Trans Pacific Partnership negotiations, and failed to make it into the federal budget," says Littler.
He sounds confident. And probably with good reason. There's just something un-Canadian about fierce competition and lower prices and taxes.
And if the government has to spend $127 million a year to keep it that way, well, so be it.