Careful: a digital tax isn’t the same as a Netflix tax

One type of levy funds Canadian creators while the other merely lines government coffers.

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Netflix Tax:

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Fears of the dreaded Netflix tax were renewed on Tuesday with a report from the CBC that the federal government is once again looking at instituting such a levy.

In light of that, it’s important to be careful about we’re calling a “Netflix tax,” because different interpretations of the concept mean different things.

The politically fraught and divisive version of the tax is rooted in the Canadian government’s long-standing tradition of subsidizing the creation of local content. Historically, television broadcasters have been required to pay a small portion of their revenues into a fund that Canadian creators can then draw on to make TV shows and movies.

The idea behind it all has been the cultivation and encouragement of a national culture distinct from the U.S. juggernaut down south.

So-called new media ventures, the most successful of which are international giants such as NetFlix and YouTube, haven’t had to pay into this fund yet because they aren’t traditional broadcasters.

The debate that’s been raging for many years centres on whether this is fair or not.

Traditional broadcasters such as Bell/CTV and the CBC itself argue that the playing field should be even. They say either the digital media companies should also have to pay into funding CanCon – an honest-to-goodness Netflix tax, but also a YouTube tax and even an Amazon tax – or the system should be done away with entirely, thereby freeing old-school broadcasters from their funding requirements.

Heritage Minister Melanie Joly has said that such a tax is unlikely, but the federal government is still looking at ways in which to continue subsidizing CanCon. One other possibility is applying the same funding requirements on internet providers as TV broadcasters have, which would to many be an equally undesirable version of the Netflix tax.

What this week’s CBC story is dealing with is similar, but also dramatically different. The “Netflix tax” quoted in the story’s headline actually has more to do with sales tax, which some digital services – most notably Netflix – do not charge in Canada.

Some other services, such as Bell’s CraveTV, do impose the 5-per-cent federal goods and services tax, which is where the argument starts to look much like the one surrounding content creation. Bell and others have asked the government to either require Netflix and other foreign digital service providers to charge their customers GST, or to exclude Canadian companies from doing so. Again, it’s a request for a level playing.

The sales tax debate is considerably less loaded than the content funding debate. The government must merely decide which fairness route it wants to go – does it want to line its own coffers more by forcing GST onto Netflix, or does it want to give consumers a break by exempting all such digital services?

When put that way, the answer seems obvious – but then again, Prime Minister Justin Trudeau did get elected on the promise of improving the lot of the middle class. A tax break on digital services would be a nice way to help with that.

The funding debate is a lot less clear cut, since it’s not obvious now – if it ever was – that Canadian culture needs subsidies.

YouTube and Netflix have both argued that they’re big supporters and enablers of CanCon and that Canadian creators are succeeding on their platforms without any funding requirements being placed on them. There is the shining example of Justin Bieber to point to – a lowly Canadian boy who became an international superstar thanks to YouTube.

On the other hand, there are plenty of companies, groups and individuals associated with the traditional broadcasting system who say that Canadian creators won’t survive against the American entertainment goliath without some form of assistance.

The actual, culturally based “Netflix tax” is thus a complicated argument that affects many different stakeholders. The other levy is more properly a digital sales tax and should not be used to invoke the same figurative bogeyman. One tax is about culture and the other is purely about money, so we should take care not to conflate the two.

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