Canada has launched consultations on border carbon adjustments, exploring carbon taxes on imported goods. The prospect of applying carbon taxes to goods produced outside of Canada raises two interesting themes.
Firstly, the move is further evidence that lawmakers are increasing their efforts to tackle climate change, with green VAT and other carbon taxes seen as an important tool in the policy toolkit.
And secondly, in a globalised economy, countries recognise that VAT policy will often have an effect on the competitiveness of their domestic markets. We can clearly see that principle in action with digital VAT, which is quickly becoming a global norm. Given the ease with which companies can enter new markets by supplying services over the internet, imposing digital services VAT on nonresident businesses can create a more level playing field for domestic and foreign digital services providers.
How Canada’s border carbon adjustments might work
Canada currently imposes a carbon pollution pricing surcharge throughout the country. The exact mechanism for carbon pollution varies by region.
However, adding an additional carbon cost to local goods can in principle create an advantage for companies outside of Canada not subject to carbon charges. They could potentially sell to customers in Canada at a lower cost.
According to Canada’s government, border carbon adjustments could therefore create a level playing field. The measure would subject imported goods to the same carbon pricing as goods produced in Canada.
VAT and global competition
We can think, analogously, of a local digital services company. Consider a local music streaming business that is registered for VAT, and charges VAT on its services. They would potentially be at a disadvantage relative to a business based outside of the country that could supply music streaming at a lower cost, as the service would not be subject to VAT. Indeed, Canada recently introduced digital services GST/HST to help create a more level playing field for local and foreign businesses.
A global VAT solution for a global economy
As governments respond to the challenges of an interconnected economy, companies inevitably face more widespread and complex VAT compliance challenges.
If you provide streaming services to customers abroad, or export goods or materials, you therefore need a solution that manages VAT compliance, everywhere you have an obligation.
Vatglobal’s technology-driven VAT compliance solution makes it simple, efficient and cost effective to meet your global VAT compliance obligations. Our cloud-based technology is always up-to-date, ensuring you meet the latest regulatory requirements. In addition, our team of VAT experts will help you navigate the complex world of international VAT.