Blogs & Comment

Op-Ed: “iPod tax” spin vs. stubborn facts

Duties still being demanded.

When governments can no longer distinguish between political spin and public policy, accountability and transparency suffer.

A case in point is the Federal Government’s tortured denial that it is introducing an “iPod tax” − that is, a tariff increase on iPods, MP3 players and other consumer electronic devices.  Depending on the item, the new tariff will be 5 or 6 per cent of an imported good’s value, likely leading to an equivalent increase in the retail price for consumers.

The Government claims not to be imposing this new tariff on consumer electronics, despite all evidence that its own Canadian Border Services Agency (CBSA) is, in fact, collecting such a tax.

The term “iPod tax” is a gross simplification, but it is one the Conservatives invented.  Prior to the last election, the Tories accused their opponents of planning to tax iPods, MP3 players, smart phones and similar devices, and coined “iPod tax” to describe the alleged plan.

Two years following the 2011 election, it turns out the now majority Conservative government are the ones upping the tax on electronics and numerous other products.  The most recent Budget contains a tariff increase of $1.1 billion.  Of course, government spin doctors do not call it an increase.  They describe it as tariff “modernization” caused by “graduating” 72 countries out of preferential tariff status.

No matter how the political message specialists try to describe the increase, tariffs are going up.  Canadians will likely end up paying more for electronic devices and countless other imported consumer goods.  Not only did Conservatives invent the term “iPod tax,” they are actually imposing it.

Unfortunately, rather than admit a mistake, the Federal Government issued a complicated (and ultimately false) explanation why iPods and other electronic devices will not cost more.  According to Government spokespersons, these devices are exempt from the customs tariff, and won’t be affected by any increase.

There is an exemption on the books, so part of the Government explanation is true.  What makes the Government’s story false is that CBSA, the customs agency, doesn’t honour the exemption.  In other words, electronic imports are not exempt from the tariff in practice.

CBSA does not accept the tariff exemption − in other words, it still makes importers pay the customs duty, or “tax” − unless importers can produce paperwork containing personal information from the ultimate consumers of these electronic devices.

This is not a simple paperwork requirement; it is an impossible barrier to overcome. Retailers, wholesalers or distributors stand between the importer and end user. A company that imports MP3 players cannot possibly maintain paperwork on the individuals who will eventually purchase the devices from retailers in Toronto’s Eaton Centre and the West Edmonton Mall.

As a trade lawyer who is currently representing a group of importers of electronic devices, I have firsthand knowledge that CBSA is not doing what Government spokespersons are claiming.

CBSA policy explicitly states, “In the event of a verification, importers are expected to provide end-use certificates confirming that the goods were solely used for the purpose for which they were imported.”  In plain language, no paperwork, no exemption from the tariff.

Despite Government claims to the contrary, CBSA is currently demanding and collecting retroactive duties from the electronic goods importers (that is, virtually all of them) who cannot supply paperwork on the end consumers.

Because CBSA is not letting importers qualify for the tariff exemption, consumers will pay higher prices for imported electronic goods − exactly what the Conservatives promised to avoid during the 2011 election campaign.

Despite the heated rhetoric on all sides, nobody in Canada wants an iPod tax − or an increased tax or tariff on other consumer electronic goods.  The obvious and straightforward solution is to lift CBSA’s end-use paperwork requirement off consumer goods.

If Government political strategists would stop spinning and start listening, they could identify a fix that works for all Canadians.

Claudia Feldkamp is a Toronto trade lawyer with Fasken Martineau and co-chair of the firm’s Corporate Social Responsibility (CSR) practice. She has been working with the Canadian Importers 9948 Fair Treatment Coalition.