Renegotiating NAFTA could benefit consumers
It’s time to bone up on some Latin. De Minimis. It means “trivial things.” It may be an obscure phrase, but it is anything but a trivial issue. It refers to the value of shipments that are allowed to enter Canada duty- and tax-free.
De Minimis is already a hotly contested issue by retailers both inside and outside Canada. It will gain even greater prominence when it appears, as it inevitably will, on the list of trade issues the Trump administration will want to negotiate with the Canadian government. It is important, in the context of upcoming NAFTA negotiations, that we find a win-win-win solution that works for Canadian consumers, retailers and governments alike.
There is a lot at stake for Canadian consumers, and especially for the increasing number who shop online. The Canadian government currently allows goods valued up to $20 to enter the country without charging duty or sales taxes. Our de minimis threshold hasn’t changed in over 35 years and is one of lowest in the world. Other countries have responded to the growth in e-commerce by raising theirs. The United States allows goods valued up to US$800 to be imported duty free. Our reluctance to change is putting Canadian consumers at a distinct disadvantage when they buy online from retailers outside the country.
We pay a hefty premium when we buy goods online from outside Canada. In addition to sales tax, we may be paying duties of up to 35 per cent.
Online retailers and express courier services have been asking the Canadian government to raise its threshold for trivial things to at least $200 to bring it into line with other leading e-commerce jurisdictions. All indications are that consumers like the idea. A recent survey by Nanos Research found that 76 per cent of Canadians polled support raising the duty free limit. And, so far more than 70,000 Canadians have written to the minister of finance or signed a petition asking for de minimis reform.
Consumers are not the only group that would benefit. Both businesses and governments would see a significant drop in customs processing costs. Our de minimis policy was originally designed to ensure that the government does not spend more than it collects in low dollar duties on imported goods. Unfortunately, that is exactly what is happening now, and it’s a waste of taxpayers’ money. According to the C.D. Howe Institute, the federal government would save $161 million per year by raising the de minimis threshold to $200. There would be a net positive benefit to Canadian consumers, governments and businesses combined of $648 million.
So, what’s standing in the way? Domestic retailers are concerned that a higher de minimis threshold would put them at a competitive disadvantage because they would still be required to levy GST or HST on the goods they sell whereas foreign retailers would not. Ministries of finance are also worried about the loss of sales tax revenue if more goods were allowed into the country tax free. These are reasonable grounds for concern and should be taken seriously.
But, maybe a win-win-win solution can be found here. The government could raise its de minimis threshold for duty-free purchases to $200 (a win for Canadian consumers) without altering its threshold for sales tax exemption (a win for Canadian retailers).
A level tax playing field would be maintained across all retailers who would continue to levy and remit much more easily administered sales taxes (a win for finance officials). Canadian consumers, businesses and governments would all benefit from stronger growth in e-commerce, lower import costs and the elimination of money-losing customs administration procedures.
Maybe renegotiating NAFTA is not such a bad thing if it means that Canada steps into the world of 21st century e-commerce — even if it takes a bit of Latin to get there.