Canada had approved a 3 percent digital last year in June and the first set of payments is due on Monday.
United States President Donald Trump has said the US is immediately ending trade talks with Canada in response to the country’s digital services tax on technology companies, in a clear escalation of pressure tactics.
Trump in a post on his Truth Social platform on Friday called the Canadian tax a “direct and blatant attack on our country” and said, “Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately”. He added, “We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period.”
Canada had approved the Digital Services Tax Act on June 20, 2024, and it came into force shortly after on June 28. Under this, Canada will charge a tax of 3 percent of the digital services revenue a firm makes from Canadian users above 20 million Canadian dollars ($14.6m) in a calendar year.
Businesses have been calling for a pause, saying it would increase the cost of providing services as well as raise the wrath of the US government. But the Canadian federal government so far has refused and is proceeding with the plans. The Canadian Revenue Authority is set to start collecting the tax on Monday and will cover revenue retroactively to 2022.
Last week, Finance Minister Francois-Philippe Champagne suggested to reporters that the digital tax may be negotiated as part of broader, ongoing US-Canada trade discussions, Bloomberg News reported. Those discussions seemed to have been going well, and a trade deal was expected in July. Now, the status of that is unclear.
“This is definitely escalation from Trump,” said Vina Nadjibulla, vice president of research and strategy at the Asia Pacific Foundation of Canada. “But we have seen this tactic before. Canada will need to work behind the scenes to find an off-ramp without giving into his demands,” she said.
“Digital tax is also part of Trump’s negotiations with the European Union. Canada will need to coordinate with the EU and other partners as it contemplates its response,” Nadjibulla added.
Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, told Al Jazeera that while Trump’s declaration was unfortunate, it was “not surprising”, adding, it would also act as a scare tactic for the EU, with whom the US is still negotiating its trade deal.
Tariffs on Canadian goods are bad for both the US and Canada as they increase the cost for businesses and ultimately consumers, experts say.
