Like many Canadians, you likely had the federal budget updates hit your radar earlier this week. Some significant elements are found within the budget, as the federal government looks to aggressively limit the deficit created by COVID-19.
Although it seems that the "Wealthy Tax" which aims to apply a 20% tax on the purchase of higher-priced cars, boats, and aircraft, got the majority of the press, there was a somewhat meaningful update pointed towards big tech. "Canada will act unilaterally, if necessary, to apply a tax on large multinational digital corporations, so they pay their fair share just like any other company operating in Canada," said Chrystia Freeland. The digital services tax that could yield $3.4 billion over the next five years is planned to be introduced on January 1st, 2022.
Companies like Google, Facebook, Amazon, and Apple will all intimately feel this 3% tax. These companies' services have become essential to our daily lives and have become the foundation of many of our marketing plans.
Indeed, the tax will not slow the growth of these companies and the usage by Canadians. Still, there should be complete clarity that big tech will not simply absorb this $3.4 billion in estimated revenue as a cost of doing business in Canada.
The move is also bold on the a global scale, as Canada looks to be the first country to impose such a tax. It is unclear if this approach may be replicated, although we would be looking closely at the US to see if they view a similar move against Canadian digital "service providers". The impact if the US were to make a similar move would be MUCH more significant to Canadian businesses, many of whom are already facing an uncertain future.
How will this Impact Me?
As alluded to above, a digital service tax will undeniably get passed along to Canadians by way of higher service fees. Namely, your Amazon Prime, Netflix, Apple Music, and Spotify subscriptions are likely to increase.
But when we look to companies like Google and Facebook, the bulk of their revenue comes via their respective advertising platforms. Thus, we fully anticipate an increase in ad rates as these organizations look to offset their obligations to the Canadian government.
Expect a cost variance in the coming quarter on the advertising and subscription front. Many will feel a 3%-5% increase in the cost of a Netflix subscription is trivial (roughly 29 cents). Still, we anticipate this may be used as an opportunity to capture more revenue from Canadians, with subscription increases potentially raising by 10%-15% under the cloud cover of the tax.
For marketers, the reality remains that Google and Facebook provide significant ROI to many. As such, any tax that can be passed along likely will not change any of our marketing plans. That said, for those investing at significant levels, this may have a material impact on traffic and revenue in the future.
Only time will tell what the impact will be. But we expect that many will feel this one in both personal and professional settings.