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Canada’s Low DMT a “Money-Losing Endeavour” Says New Study

Posted June 27, 2016

Increasing the de minimis threshold (DMT) for imports in Canada would generate significant benefits for Canadians, finds a new report from the C.D. Howe Institute.

In Rights of Passage: The Economic Effects of Raising the DMT Threshold in Canada, authors Christine McDaniel, Simon Schropp and Olim Latipov, state that raising the DMT would have positive effects for consumers and businesses, particularly small- and medium-sized businesses because the cost savings for smaller entities is disproportionately large.

The DMT threshold is a valuation ceiling for imports, below which no duty or tax is charged and the clearance procedures are minimal. “With Ottawa considering raising the threshold for duty-free imports into Canada, it is timely to assess the economic costs and benefits of such a policy,” states McDaniel. “With the dramatic increase in internet-based shopping, duties and taxes collected on small individual items imported by mail bring additional revenue for governments,” she adds. “What is gained in revenue, however, often fails to outweigh the high costs of customs procedures and assessment.” The report points out that this is particularly so for shipments whose value is small, but still exceeds the DMT threshold for inbound goods by mail.

Currently, Canada’s DMT of C$20 is among the lowest in the world, and indeed the lowest of any industrialized country. The report models the direct costs and benefits of increasing the DMT in Canada to various levels, namely C$80, C$100, and C$200, for three stakeholders: (i) the Government of Canada; (ii) Canadian consumers; and (iii) Canadian businesses, in particular small and medium-sized businesses, that rely on small packages imports for their operations.

According to McDaniel, “we find that lifting the threshold would have a net economic benefit of up to C$648 million.”

The results indicate that increasing the DMT in Canada would be fiscally neutral or positive for the Government of Canada, and positive for consumers and businesses, particularly small- and medium-sized businesses since the cost savings for smaller entities is disproportionately large. These results reflect the relative inefficiency of DMT tax and duty assessments. They show that raising the DMT can alleviate these inefficiencies and yield benefits in terms of cost savings from a reduction in brokerage fees, costly import delays, and administrative costs for government, consumers and businesses.

“These results clearly indicate that increasing the DMT from the current level of C$20 is likely to yield a net economic benefit for Canada,” conclude the authors.

It should be noted that the study, commissioned by eBay, doesn’t consider the effects a higher DMT would have on Canadian retailers.

The Retail Council of Canada stands firmly opposed to raising the DMT, citing the fight over de minimis as a “critical” issue to its members. David Wilkes, the group’s vice-president points out that its members are forced to serve as tax collectors for both the federal and provincial governments, whereas foreign online retailers often don’t collect taxes on behalf of any government. As such, raising the DMT and allowing U.S. retailers to ship goods tax-free into Canada “would create an automatic 12.3% tax disadvantage for our members,” says the Retail Council. “It is a matter of tax fairness.”