Global tech platforms are passing on the cost of the new levy to advertisers. But, argues Devon MacDonald, this is a great chance for brands to work with their agencies on advertising strategies that look beyond the digital behemoths.
New taxes are rarely popular so nobody should be surprised at the significant backlash to the introduction of the Digital Services Tax Act by Canada’s government.
The Act imposes a 3% tax on digital services revenue (including advertising) that exceeds $20 million for businesses with global revenue of €750 million or more. In practical terms this amounts to a targeted levy on a handful of major international platforms such as Amazon, Google and Meta.
Other markets including the UK and Italy have implemented similar taxes. The UK’s 2% charge came into effect in 2020 and Italy’s 3% charge in the same year.
However, the United States has no similar tax at the federal level, and the US ambassador to Canada has warned of a trade war with Washington having “no choice but to take retaliatory measures” in the shape of tariffs on Canadian businesses. Meanwhile, streaming companies including Netflix and Spotify are making legal challenges to the tax.
The Association of Canadian Advertisers (ACA) and Canadian Chamber of Commerce have criticized the tax in strong terms. The ACA is calling for a rethink to “reduce the potential damage to the Canadian economy” while the Chamber calls it “a retroactive discriminatory digital services tax” that will “make life more expensive for Canadian families, businesses and workers.”
These critics have a point given that some of the digital giants impacted, such as Google, intend to pass on the cost as a surcharge to advertisers. Others like Roku and Snap will not. But stamping our feet in frustration isn’t the only valid response – we should also see the new tax as an opportunity for Canada’s advertisers to rethink their media investment strategies.
Take a proactive stance
The ACA says of costs being passed onto advertisers: “This could diminish the ability of marketers to cost effectively reach their target audiences, potentially disproportionately impacting smaller advertisers and emerging businesses that rely heavily on digital advertising.”
It’s true that this tax does put pressure on advertisers who use the likes of Google. Digital media is layered already with multiple tech fees, and this will be another one. It will result in diminished working dollars invested into those platforms by advertisers.
But my feeling is that advertisers who take a proactive stance can recover these efficiency losses by looking to Canadian-owned media or other platforms like Snap that are absorbing the tax. Now is the time for advertisers to vote with their dollars and support local and diverse options. And it’s here that advertisers can lean into their agencies for council and direction, taking the introduction of the tax as a prompt to explore all avenues to deliver the most effective media campaigns.
That’s an approach encouraged by the Institute of Canadian Agencies (ICA) and its PRIME manifesto. Standing for “Purpose and Responsibility in Media Economics”, PRIME was established in 2021 to motivate action, create community, and empower authentic local and diverse media through workshops and roundtables focused on key themes in the media industry.
Its launch was stimulated by an underinvestment in local, trusted media sources. Alongside PRIME, we’ve also seen initiatives such as the Canadian Media Manifesto from the Canadian Media Directors’ Council, which has the goal of encouraging the country’s advertisers to commit 25% of digital media investment (or $380 million) to Canadian media by 2025.
It’s time to “think local”
These initiatives are so important because it’s essential for advertisers to advance their understanding of diverse audiences by investing more in local media, as well as in media by, and for, communities including LGBTQ+, Black, Asian and South-Asian.
The evidence exists that this “think local” approach works for brands. For example, Cheekbone Beauty, the Indigenous-owned beauty brand, worked with agency Sid Lee on a bold campaign based on Canada’s own media platforms, including $1 million of media space donated by Bell Media. At my own agency, Cairns Oneil, we’ve worked with advertisers including Reddit on community-based campaigns using Canadian-owned media such as out-of-home and TV alongside digital. There is a plethora of platforms with great display and video opportunities available to advertisers that must be reconsidered by brands and agencies.
It’s clear that the 3% digital tax isn’t great news for advertisers that continue to plow millions into multinational digital platforms. And in some cases it’s hard to replace the impact that this media investment achieves. But it’s my strong belief that the outlook is much better for those that innovate and invest in Canada’s own vibrant media scene. And strive to work with their agencies on making their campaigns more successful by understanding what individual media channels offer, how they behave, and how they’re funded.
Devon MacDonald is President of full-service media agency Cairns Oneil, and a board member of the Institute of Canadian Agencies. Report on Marketing is where leading Canadian agencies showcase their insights, cutting-edge research and client successes. The Report on Marketing provides a valuable source of thought leadership for Canadian marketers to draw inspiration from. Find more articles like this at the Report on Marketing.
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