The Canadian Media Director’s Council (CMDC) and the Association of Canadian Advertisers (ACA) are raising concerns about the implementation of the new Digital Services Tax introduced through Bill C-59.
The tax, which imposes a 3% levy on digital services revenue, is meant to ensure fair taxation of multinational digital companies. According to both organizations, the reality is that cost is being unfairly passed down to Canadian advertisers, “effectively transforming it into a fee on the Canadian media industry.”
The DST, which became effective on June 28, applies to companies with digital services revenue of more than $25 million in Canada. It includes revenue from online marketplaces, online advertising services and social media platforms.
In a statement, the CMDC urges the federal government to reconsider the tax, as major digital service providers, like Google and Amazon, have indicated their intention to pass 2.5% to 3% (respectively) of the DST to their advertising partners. “This pass-through fee places additional financial pressure on Canadian media agencies and advertisers, jeopardizing the economic health of the Canadian advertising sector,” the CMDC statement reads.
“The Digital Services Tax, as it stands today, is more than just a tax on multinational digital corporations; it is becoming a fee that Canadian advertisers are having to absorb. This was not the intended outcome of the legislation,” says CMDC president Shannon Lewis. “Implementing this tax during a time of economic and productivity challenges could be detrimental, risking vital growth in a media sector that contributes $25.2 billion to Canada’s GDP and employs over 8,000 individuals.”
Pass-through fees complicate the reporting of return on ad spend for campaigns as the additional cost must be factored into campaign budgets. The CMDC argues that these additional costs hinder effective comparisons between platforms.
“With major digital players passing along some or all the DST, it increases the cost burden to advertisers,” says Judy Davey, VP media policy and marketing at the ACA. “This could diminish the ability of marketers to cost-effectively reach their target audiences, potentially disproportionately impacting smaller advertisers and emerging businesses that rely heavily on digital advertising.”
What’s more, unlike the deal that was struck between the government and Google, the revenue from the tax is not meant to be returned to the industry directly.
