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Making Sense of the Canadian Digital Tax Debate, Part 3: New Taxes or Fees on Internet Access

A potential Netflix tax may garner the lion share of media attention, but the more harmful tax proposal comes from those advocating for a tax on Internet service providers that would have a real impact on all Internet use (earlier posts in the series include digital sales tax and Netflix tax). As far back as 1998, the CRTC conducted hearings on “new media” in which groups argued that the dial-up Internet was little different than conventional broadcasting and should be regulated and taxed as such. In other words, groups have been arguing for new Internet taxes since before Google, Facebook, or Netflix.

For example, Peter Grant, who now sits on the broadcast and telecom review panel told the CRTC twenty years ago that if broadcast quality video ever reached a certain level of market penetration on the Internet, the Commission should “require certain obligations about some funding as a proportion of the revenue from this particular activity to go into a fund or whatever.” Grant continued by arguing that websites were the equivalent of programming undertakings and Internet providers were broadcast distribution undertakings (ie. the Internet was the equivalent of cable distribution).

An Internet tax is largely premised on the argument that ISPs and Internet companies owe their revenues to the cultural content accessed by subscribers and they should therefore be required to contribute to the system much like broadcasters and broadcast distributors. In fact, the CRTC said exactly that in its report on broadcasting earlier this year:

there are numerous services in Canada that connect Canadians to content, whether through the Internet or broadcast networks, such as cable or satellite. Demand for these services is almost wholly driven by demand for audio and video content, yet the Canadian market for this content is only supported by BDUs, television programming and radio services.

The reality, however, is that Internet use is about far more than streaming videos or listening to music. Those are obviously popular activities, but numerous studies (CIRAStatistics Canada) point to the fact that they are not nearly as popular as communicating through messaging and social networks, electronic commerce, Internet banking, or searching for news, weather, and other information. From the integral role of the Internet in our education system to the reliance on the Internet for health information (and increasingly tele-medicine) to the massive use of the Internet for business-to-business communications, Internet use is about far more than cultural consumption. Yet proponents of an Internet tax envisions the Internet as little more than cable television and wants to implement a taxation system akin to that used for cable and satellite providers.

In fact, some groups have tweaked the full Internet tax by calling for a tax on Internet data use. The Screen Composers Guild of Canada (SCGC) is seeking a mandated copyright tax on all broadband data use in Canada. The group proposes that the first 15 GB of use should be tax free, suggesting that the free use will cover emails and other basic uses. For everything above that amount, the copyright tax on data would apply:

We envision a new “internet-light ISP service” that could form the exchange of revenue that we refer to as the SCGC Copyright Model (SCGC-CM). It would allow home internet users fifteen gigabytes of unlevied data per-month, enabling ample room for email, commerce and downloading, but beyond that, a copyright levy could be collected and remitted to a collective for distribution to copyright holders.

At committee, the group expanded on the argument:

An ISP subscription levy that would provide a minimum or provide a basic 15 gigabytes of data per Canadian household a month that would be unlevied. Lots of room for households to be able to do Internet transactions, business, share photos, download a few things, emails, no problem. But my own personal experience is that in my family, when you’re downloading and consuming over 15 gigabytes of data a month, you’re likely streaming Spotify. You’re likely streaming YouTube. You’re likely streaming Netflix. So we think because the FANG companies will not give us access to the numbers that they have, we have to apply a broad-based levy. They’re forcing us to.

There is no way around the fact that an Internet tax would make access less affordable, expanding the digital divide by placing Internet connectivity beyond the financial reach of more low-income Canadians. The tax would be particularly damaging in indigenous communities. The government’s emphasis on affordability and innovation is a critical consideration. Navdeep Bains, the Innovation, Science and Economic Development Minister, has acknowledged the broadband affordability problem:

Low-income Canadians spend a higher share of their household income on cellphone and Internet bills than high-income Canadians. So it’s not surprising that only 6 out of 10 low-income households in Canada have Internet service.  By contrast, virtually all households that earn $125,000 annually have it.  

This digital divide is unacceptable. It represents a real barrier to continued prosperity for Canadians. Every child who’s unable to do school assignments or download music online is one less consumer of your products and services. Each one of these children is potentially one less software developer for your industry – and one less job creator for our country. 
We need every Canadian to be innovation ready- ready to spot opportunities, imagine possibilities, discover new ideas, start new businesses and create new jobs. All Canadians need access to high-speed Internet, regardless of their income level or postal code. Until we bridge this digital divide, Canadians will not reach their full potential.

Given the harmful effects, the government rejected an Internet tax proposal last year on affordability grounds:

The Committee’s recommendation to generate revenue by expanding broadcast distribution levies so that they apply to broadband distribution would conflict with the principle of affordable access. The open Internet has been a powerful enabler of innovation, driving economic growth, entrepreneurship, and social change in Canada and around the world. The future prosperity of Canadians depends on access to an open Internet where Canadians have the power to freely innovative, communicate, and access the content of their choice in accordance with Canadian laws. Therefore, the Government does not intend to expand the current levy on broadcast distribution undertakings.

Notwithstanding the rejection, the Internet tax issue resurfaces again and again. Given 20 years of lobbying for Internet taxes, it seems unlikely the proponents will stop now.

2 Comments

  1. This is something of the “how do you pay for universal goods” problem.

    In the early days of the United States, one of the big outlays was for a lighthouse at Cape Henry, at the mouth of the Chesapeake. But that posed an obvious problem: how do you bill ships for the light waves they use to navigate with?

    The light was good (in the sense of “not bad”, not of goods in a store), and it was universally desirable., so it was a “universal good”. The new government, in the ninth law they ever wrote, funded a _United States Lighthouse Establishment_ on August 7, 1789, and ate the cost.

    Now we are faced with taxing electrons instead of light waves, for something that’s universal, but only a pretty-much-good.

    Not quite the same thing, but a member of the same set of problems…

  2. Pingback: Making Sense of the Canadian Digital Tax Debate, Part 4: New Taxes or Fees on Digital Devices - Michael Geist

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