Canadian budget leads with digital tax and IT investments

By on 20/04/2021 | Updated on 04/02/2022
Canada’s new digital investments are designed to boost online public services and help businesses adapt to the digital world. Picture by Benoit Rochon

Canada has announced plans for a digital sector tax and new funds for civil service IT projects, publishing a federal budget containing a swathe of announcements on technology initiatives for the private and public sectors.

Headline policies in the budget, unveiled on Monday, include the levying of a Digital Services Tax targeting “services that rely on data and content contributions from Canadian users”; a C$88m (US$70m) boost for the Canadian Digital Service; the creation of a new data commissioner role; and C$42m (US$33m) to fund improvements to the Canada Revenue Agency’s online services.

The government is giving “$88 million over four years, starting in 2022-23, and $25.8 million [US$21m] ongoing, to the Treasury Board of Canada Secretariat to renew and expand the capacity of the Canadian Digital Service,” the budget document says, noting that “during thepandemic, its services and expertise were more vital than ever.” It highlights the launch of a Covid alert app and the provision of text messaging services on pandemic issues. The new funding will “make sure that the Canadian Digital Service can meet the growing needs of Canadians and Canadian businesses,” it says.

But “as the digital and data economy grows, Canadians must be able to trust that their data are protected and being used responsibly,” the budget adds. So it allocates C$17.6m (US$14m) over five years, starting in 2021-22, and C$3.4m (US$2.7m) per year ongoing, to the creation of a new Data Commissioner role.

“The Data Commissioner would inform government and business approaches to data-driven issues to help protect people’s personal data and to encourage innovation in the digital marketplace,” it says.

Funding public sector IT

The budget sets aside money for upgrading legacy IT systems, with C$648m (US$515m) handed to two agencies — Employment and Social Development Canada, and the Treasury Board Secretariat — over the next seven years to modernize critical systems and support service delivery. Shared Services Canada will get C$300m (US$238m) over the next three years to “repair and replace critical IT infrastructure”. And it also provides funds to boost online services at the Canada Revenue Agency, with C$42m over three years, starting in 2021-22, going towards improvements such as “making online self-service more user-friendly”.

While the pandemic has prompted higher spending on digital, however, it has curtailed travel – and the government clearly wants to keep a lid on civil service travel spending as movement controls are relaxed. “Budget 2021 proposes to reduce the operating budgets of the departments and agencies with the highest historical travel costs,” the document says, “resulting in combined savings of $1.1 billion [US$870m] over five years, starting in 2021-22, and $222.5 million [US$170m] per year ongoing.”

And for business

“The pandemic has hastened the economy’s digital transformation as companies, workers, and consumers conduct more and more business online,” the budget says, setting out the government’s desire to support small and medium-sized businesses through this transition while raising more money from large tech firms. The country’s new Digital Services Tax — which follows similar measures imposed by European countries — will apply to the latter group, hitting “large businesses with gross revenue of 750 million euros [US$900m] or more”. The tax will stand at 3% of “revenue from digital services that rely on data and content contributions from Canadian users”, and will come into force at the start of 2022.

Meanwhile, “Canadian businesses need to adopt new technologies and digitize to meet customer needs and stay competitive,” the budget document says. A new Digital Adoption Program will provide C$1.4bn [US$1.1bn] over four years, starting in 2021-22, to Innovation, Science and Economic Development Canada. “This groundbreaking new program will help Canadian small businesses become more efficient, go digital, take advantage of e-commerce, and become more competitive in Canada and abroad,” it says.

Also as part of the programme, the Business Development Bank of Canada will get C$2.6bn (US$2.1bn) over four years, starting in 2021-22, “to help small and medium-sized businesses finance technology adoption”. And the government is spending big money on frontier technologies: some C$444m (US$353m) of funding over ten years has been set aside to “renew” the country’s AI strategy, while C$360m (US$285m) over seven years will go towards the launch of a National Quantum Strategy.

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