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Standing Committee on Public Accounts: Office of the Auditor General Audit on Taxation of E-Commerce ()
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The Canada Border Services Agency (CBSA) plays a crucial role in supporting the Canadian economy by facilitating trade and ensuring that individuals and businesses comply with federal and provincial taxation regulations on imported goods and services, including E-commerce. In 2019, the Office of the Auditor General (OAG) released an audit (covering the period of to ) that examined how effectively the Canada Revenue Agency (CRA), the Department of Finance, and the CBSA, ensures the sales tax system for e-commerce remains neutral and the GST/HST tax base is being protected.

With respect to the Agency, the audit examined whether the CBSA validated and collected the sales taxes owed to the Government of Canada on goods imported through the Courier Low Value Shipment (CLVS) program. The OAG audit determined that the limits of existing legislation, combined with the CBSA's data management practices placed Canadian businesses at an unfair disadvantage. These limitations were such that the Agency should have been aware that certain companies were likely not remitting all sales taxes as part of the CLVS program. Additionally, the OAG recommended that: the CBSA identify the program variables that should be fully reflected in their systems and forms; ensure it receives shipment data electronically in advance of the goods arriving at the border to facilitate compliance activities; and, implement a comprehensive E-Commerce Strategy to make informed risk assessments and improved revenue collection.

The CBSA accepted the findings of the Audit and it put in place a comprehensive and measureable Management Response Action Plan, in collaboration with internal and external stakeholders:

  1. Review and update the means by which goods are accounted for so as to ensure that taxes (including provincial sales taxes) are fully reflected ()
  2. Develop an e-commerce strategy focusing on trade facilitation, safety and security as well as revenue collection ()
  3. Participate in the World Customs Organization Working Group to identify revenue collection models and evaluate other countries best practices ()
  4. Examine options to further automate the CLVS Program including the ability to receive, process and analyze customs data (Fiscal year 2022 to 2023)
  5. Renew focus on compliance activities in the CLVS program by conducting statistically valid courier compliance activities based on courier data to ensure revenue and security related requirements are met ()

Program background

The CLVS program is intended to help simplify the process of importing low value goods by streamlining the customs processing of eligible shipments valued up to CAD$3,300, and by providing the courier industry with expedited release at the border. Goods that are controlled, prohibited or regulated by an Act of Parliament however, are not eligible for the CLVS program. In the 2017 to 2018 fiscal year, there were 46 million low-value shipments sent by participating couriers from abroad and received in Canada, compared to 35 million just five years earlier. Low-value shipments continue to increase, totaling 57 million in 2018 to 2019 fiscal year and 65 million in 2019 to 2020. This highlights the speed of growth of E-Commerce in recent years and the increasingly challenging landscape that the CBSA has had to contend with in regards to implementing new strategies and policies to keep pace with new technologies and globalization.

Overall, the Canadian sales tax system has not kept pace with the rapidly evolving digital marketplace and it is estimated that there were GST losses of $169 million on foreign digital products and services sold in Canada in 2017. Furthermore, the federal government has not been able to assess and collect all sales taxes on e-commerce transactions.

Program response

The CBSA has made significant progress on the 2019 MRAP commitments, including:

In , the CBSA approved internally an end-to-end integrated E-Commerce Customs Framework and Strategy. The Strategy highlights the Agency's plan to adapt itself to increasing volumes of low-value packages processed at the border, driven by direct-to-consumer e-commerce. The situation has been exacerbated by the Covid-19 pandemic.

To address these challenges effectively, the Agency will advance four key pillars of the Strategy:

  1. Strengthening legal and regulatory authorities
  2. Transforming the CBSA operations
  3. Strategically expanding and leveraging partnerships
  4. Building the Agency's capacity in the area of infrastructure and IT enhancement

The investments will enable the Agency to better utilize innovative technology and tools.

CBSA has already made the following advances:

Importantly, building on this work the Agency is developing a proposal that will address data requirements and seek funding to advance the automation of CLVS leveraging cloud technology and data analytics.

The CBSA has been working towards the implementation of a renewed Courier Low Value Shipment (CLVS) Program Compliance Management Framework. National Compliance Exercises have been conducted at selected locations for each of the twelve CLVS participants, to assess the level of non-compliance regarding participant requirements, report/release and accounting in this stream. New and improved compliance management activities will help to ensure the postal and courier streams will attain the goals of improved revenue collection and compliance rates for E-Commerce.

The Agency is on track to meet its 2022 to 2023 objectives and has already reviewed and enhanced the means by which goods under the CLVS program are accounted to ensure that taxes (including provincial sales taxes) are fully reflected. Additionally, CBSA has examined options to further automate the CLVS program, including the ability to receive, process, and analyze customs data and is consulting partners and stakeholders on an ongoing basis. Proofs of concept are in place whereby the CBSA receives advance data on a voluntary basis at certain locations from a selection of CLVS participants. This work is informing development of policy and investment proposals to allow for broader implementation.

The Agency has also begun implementing the multi-year CBSA Assessment and Revenue Management (CARM) initiative that will transform the collection of duties and taxes for goods imported into Canada. Through CARM, CBSA is modernizing and further streamlining the process of importing goods by giving the trade community access to online border services 24/7 and ultimately, make it easier for businesses to work with the Agency, improve consistency in applying trade rules and decisions, and reduce repetitive information requirements. The CARM project team is preparing for the implementation of Release 0 (R0) set for winter 2020, and has completed the business model designs for Release 1 and Release 2, which will respectively be implemented in and . The CARM business model design was completed in consultation with CBSA subject matter experts and the trade chain community. The proposed solution for CLVS that will be implemented at Release 2 will allow for greater visibility on an importer's importing practices and enhance the Agency's ability for compliance monitoring in the CLVS commercial stream while allowing for increased traceability on PST/HST collected on behalf of the provinces in the CLVS non-commercial stream.

As the Agency continues its work on the E-Commerce Strategy, it also continues to play a key role in the adoption of the WCO E-Commerce Framework of Standards (targeted to be finalized in ) and integrates the guidelines into its new solutions. The Agency is committed to taking concerted action and will closely monitor performance against targets to ensure better results are achieved in the years to come.

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