In a dramatic policy reversal, Canada has scrapped its proposed digital services tax mere hours before it was due to be implemented, a move widely seen as an effort to rescue stalled trade talks with the United States.
The tax, which targeted major U.S. technology firms, had prompted a strong backlash from former President Donald Trump, who called the policy a “blatant attack” and threatened new tariffs on Canadian goods. The Canadian Finance Ministry confirmed the suspension late Sunday, saying the decision was aimed at paving the way for renewed negotiations.
Canadian Prime Minister Mark Carney and U.S. President Donald Trump are now set to resume trade negotiations, with a July 21 deadline set for striking a deal. The sudden breakdown in talks last Friday was attributed to tensions surrounding the digital tax, which would have applied a 3% levy on revenues from Canadian users exceeding $20 million annually, with retroactive payments dating back to 2022. The proposed law would have impacted tech giants such as Amazon, Meta, Google, and Apple.
The Canadian Finance Ministry said collection of the tax, originally slated to begin Monday, has been suspended, and legislation to formally repeal the Digital Services Tax Act will be introduced. Finance Minister François-Philippe Champagne emphasized that Canada’s preference has always been a multilateral agreement on digital services taxation, rather than unilateral enforcement. The tax had been in the pipeline since 2020, designed to address perceived inequities in how global tech firms pay taxes on Canadian-generated revenues.
Financial markets reacted positively to the announcement, with stock index futures rising and the upbeat sentiment spilling over into Asian trading. Analysts believe the move could help avert another trade crisis between the two North American economic giants. Canada is the second-largest trading partner of the United States, buying $349.4 billion worth of U.S. goods in 2024 while exporting $412.7 billion to its southern neighbour.
Meanwhile, Canada still faces potential fallout from earlier trade tensions. Though it had avoided Trump’s blanket tariffs earlier this year, the country is currently subject to 50% duties on its steel and aluminum exports to the U.S. Washington had earlier requested consultations under trade dispute settlement mechanisms, arguing that the digital tax violated North American trade deal provisions.