Following Prime Minister Mark Carney's decision to cancel Canada's planned digital services tax (DST), the Information Technology and Innovation Foundation (ITIF) has commented on the implications of this move. Lawrence Zhang, head of policy at ITIF’s Centre for Canadian Innovation and Competitiveness, stated that repealing the DST was a prudent choice.
According to Zhang, "It would have cost Canadian consumers and businesses the most and invited retaliatory taxes from the United States government, worsening trade tensions just as Canada faces rising tariff pressure." The DST aimed to address challenges in taxing cross-border digital activity but had several structural issues. It proposed a 3 percent fee on gross revenues for companies, even those unprofitable, retroactively applied to 2022. This would have forced companies to navigate unclear payment rules.
Zhang further explained that the tax increased risks of double taxation for firms already paying abroad and could undermine fair competition by targeting large international providers while exempting domestic firms.
With the DST no longer under consideration, Zhang suggests Canada can focus on enhancing competitiveness through other means. He advocates for accelerating digital adoption, strengthening intellectual property enforcement, and supporting Canadian firms in scaling up operations. Zhang emphasizes that these steps are not merely alternatives but essential strategies for success in a complex global economy.