E-commerce imports into Canada: Sales tax and customs treatment

With e-commerce imports into Canada on the rise, sales tax and import duty payments on these imports are likely to yield considerable revenues for the public sector. This, however, depends on the degree of customs compliance when these shipments are processed upon import by delivery operators and customs authorities.

This experimental study tested the extent to which e-commerce shipments to Canada are correctly processed upon import. Three principal questions guide our research design.

The experiment involved a fully completed e-commerce transaction for 200 online purchases. As a result, these packages were shipped by e-sellers from five key trading partners of Canada (China, France, Japan, UK and US). The shipments for the experiment 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, we observed whether sales tax or import duty were collected in the customs clearance process. Moreover, we ran a separate experiment regarding controlled goods and compliance in the customs treatment of such imports.

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. We conclude that sales tax and import duty are significantly less likely to be collected when shipments are sent via postal versus express operators. The missed collection of sales tax and import duty on e-commerce inbound postal shipments results in a significant loss of public income to Canada estimated to C$ 1.3bn. Moreover, this distorts competition between Canadian retailers and foreign competitors as well as the competition between postal and express operators.

The study is commissioned by UPS

Please direct all enquiries on this study to Dr Bruno Basalisco

Download French version