2021 Canadian Chamber of Commerce Resolution:Improper Collection of Duties Negatively Impacts Canadian Retailers and Federal Tax Revenues
to be submitted to the Canadian Chamber of Commerce at the 2021 Annual General Meeting in October
Canada Border Services Agency (CBSA) is responsible for administering trade agreements to meet Canada’s international obligations. This includes the collection of taxes, duties, and tariffs on imported items. There is a significant gap in CBSA duty collection at US/Canada land border crossings due to the incorrect identification of country-of-origin code resulting in duty free status.
At a time when all Canadians are encouraged to “buy local”, this lax implementation of established regulations is disadvantaging Canadian businesses and reducing federal revenues by an estimated $1.3 Billion per year, through the postal system alone.
With the increased selection available due to online shopping options, more and more Canadian individuals and businesses are purchasing goods using the Internet. Due to high shipping rates, many Canadian businesses and consumers have found that they can save money by having goods shipped to a USA address and then importing the goods to Canada by driving across the border themselves.
Similar to many countries, Canada offers a de minimis threshold for duty-free importation. In Canada’s case it is $150 CAD per shipment but only when goods are imported from the USA using a courier service. In the case of the Canadian consumers who pick up their parcels from the US receiver, current regulations offer no duty exemption based on the value of the goods unless they have been out of the country for over 48 hours. There is no duty exemption for same-day cross border shoppers.
When the accounting for imported goods is performed by CBSA, a “tariff treatment” code is assigned based on the country of origin (where the product was made). This code triggers duty rates based on trade agreements with other countries. For example, Tariff Treatment 10 is for products made in the USA and triggers a duty-free status based on the CUSMA free trade agreement to which Canada, USA and Mexico are parties. Tariff Treatment 2 is the “Most Favoured Nation” tariff treatment and would trigger the duty rate for any country that doesn’t have a trade agreement with Canada.
When businesses import goods through the commercial stream, duties are collected based on where the product is manufactured. However, when individuals drive across the border and return with the goods that were delivered to a US address, it is very rare that duty is collected on consumer imports because the product is treated as though it was manufactured in the USA.
Data collected through a federal FOI request confirms individual consumers are being forgiven the payment of duties and tariffs by CBSA that are mandatory charges to Canadian businesses. When individuals cross into Canada and declare the goods purchased, they are either waived through without paying any duties or taxes or asked to come inside the CBSA office to pay. Records obtained through ATIP requests indicate that Border Services Officers (BSOs) mark nearly everything as Tariff Treatment 10, Made in the USA which is duty-free. This occurs regardless of where the products are made.
For example, if a Canadian retailer imported $5,000 worth of clothing made in Bangladesh for retail sale in their shop, those items would be assessed about $900 worth of duties. Naturally, the extra funds would be incorporated into the retail price of those items. If a Canadian consumer orders the same clothing online to a USA address, drives across the border and picks it up themselves, they should be required to pay the same amount of duty when they import the goods into Canada.
Local retailers pay a high rate of duty to import their inventory commercially through the payment of duties and tariffs to the Government of Canada which increases the retail sticker price; however, a consumer is able to purchase the identical product and avoid duties by carrying the goods across the border themselves. This practice places Canadian businesses at a competitive disadvantage and incentivizes Canadians to shop elsewhere while concurrently reducing revenues to the Government of Canada and undermining Canada’s international trade agreements
That the Government of Canada through the Minister of Public Safety and Emergency Preparedness:
- Safeguard a level playing field for Canadian retailers by ensuring that duties are appropriately collected at land border crossings when a BSF715 form for casual import declarations is completed; and
- Update the default tariff treatment in the CBSA Traveller Entry Processing System (TEPS) from preferential Tariff Code 10 (Made in the USA), to tariff Code 2 (Most Favoured Nation Code) at land entry points while ensuring that CBSA officers are appropriately trained to identify product country of origin for casual import declarations.
ATIP Request A-2020-20052 (https://open.canada.ca/en/search/ati/reference/2662e57f0e0d21baf844c9c55314feaf)
2017 Spring Reports of the Auditor General of Canada to the Parliament of Canada. Report 2- Customs Duties https://www.oag-bvg.gc.ca/internet/English/parl_oag_201705_02_e_42224.html
Copenhagen Economics 2017 Report, “E-Commerce Imports into Canada: Sales Tax and Customs Treatment” https://www.copenhageneconomics.com/dyn/resources/Publication/publicationPDF/9/379/1488463673/copenhagen-economics-2017-e-commerce-imports-into-canada-sales-tax-and-customs-treatment.pdf