Trade Compliance

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Compliance Gap on E-Commerce Imports Costing Government Billions in Lost Revenue: Study

Posted March 06, 2017

The Canadian government is losing an estimated $1.3 billion per year in revenue from overlooked customs duties and taxes on e-commerce imports, according to a new study by Copenhagen Economics.

Research by the consulting group found there is a significant difference in customs compliance depending on whether a shipment is imported via postal operators or express carriers such as UPS, which actually commissioned the report.

The “experimental” study tested the extent to which e-commerce shipments to Canada are correctly processed upon import, utilizing three principal questions:

  • Is there a difference in compliance with customs related processes (sales tax and import duty) for international shipments inbound to Canada, depending on the type of operator used: postal or express carrier?
  • What is the impact of any difference in customs treatment on public sector revenue?
  • Is there a difference in the formal customs clearance for controlled goods, depending on the type of operator used: postal or express carrier?

The research involved a fully completed e-commerce transaction for 200 online purchases. The packages looked at were shipped by e-sellers from five key trading partners of Canada (China, France, Japan, UK and U.S.) that contained general consumer goods, all of which are subject to sales tax (HST/PST) and import duty under Canadian laws. For each of these shipments, researchers observed whether sales tax or import duty was collected in the customs clearance process. A separate experiment was also conducted to determine the degree of import compliance in the customs treatment of controlled goods.

“We find that these shipments are treated differently at customs clearance, where sales tax and import duty should be applied, depending on the type of delivery operator,” the analysis found, concluding that “sales tax and import duty are significantly less likely to be collected when shipments are sent via postal versus express operators.”

Specifically, the study determined that sales tax is collected on only 25% of postal shipments imported into Canada, whereas express operators collected on 100% of shipments and that import duty is collected on just 6% of postal shipment imports, compared to 98% in the case of express operators.  

“The missed collection of sales tax and import duty on e-commerce inbound postal shipments results in a significant loss of public revenue to Canada,” the report says. “Moreover it distorts competition between Canadian retailers and foreign competitors. Finally, it distorts the competition between postal and express operators.”