Canada has officially abandoned its plans to tax big US tech companies. This decision is to reconfigure the East African trade landscape to invite the United States back into the trade negotiations. The tax begins on Monday, September 26. It will create an economic cost of more than $2 billion annually on large technology firms. This shift is particularly notable given the backdrop of rising hostilities and trade deliberations between the two bordering nations.
The reason for the proposed digital services tax (DST) is clear, as large technology companies have avoided paying their fair share of taxes in Canada. These companies were making billions in revenues from Canadian customers and not paying their fair share to the tax system. François-Philippe Champagne, Canada’s finance minister, stated, “The DST was announced in 2020 to address the fact that many large technology companies operating in Canada may not otherwise pay tax on revenues generated from Canadians.” The upcoming revocation of the tax would represent a major reversal in policy. Canada is putting on a full-court press to win over American lawmakers.
Even the Liberal Party of Canada, under Mark Carney, supported the introduction of such a tax. This support expanded in tandem with mounting animosity towards the biggest US tech companies. Former President Donald Trump openly criticized Canada’s policy, describing it as “egregious” and asserting that “economically, we have such power over Canada.” Trump’s administration got involved, warning Canada of higher tariffs on Canadian imports if the tax went into effect. This impossible pressure eventually forced a stop to thawed negotiations for a much-lauded possible new trade deal.
A fully three-quarters of all the goods Canada exports go directly to the US. With bilateral trade worth more than $400 billion per year, the stakes are high for both countries. At only 17 percent of US production, Canada’s economic relationship with the US is extremely important. The rushing sense to get new trade terms in place is clear as both countries look for a deal before July 21.
Over the past few months, Trump has made himself into an ally to the leaders of technology companies. This new development mirrored with similar developments in U.S. More significantly, the cancellation of the tax reflects a strategic retreat. This decision is a much-needed step towards reigniting conversation and collaboration on key trade initiatives that will positively impact both economies.