In a bold move, Canada scrapped its digital services tax on Monday—just hours before it was supposed to begin. The surprise U-turn came after former U.S. President Donald Trump threatened to kill ongoing trade talks over the tax.
The tax, a 3% charge on digital revenues earned in Canada, was set to hit tech giants like Amazon, Google, Apple, and Meta. It would have been applied retroactively to 2022 earnings.
Trump’s warning worked—Canada blinked
Trump had abruptly ended trade talks with Canada last Friday. He called the digital tax a “blatant attack” on American companies. On Sunday, he even warned he would slap new tariffs on Canadian goods within a week.
That pressure worked.
Late Sunday night, Canada’s finance ministry confirmed that Prime Minister Mark Carney and Trump will restart trade talks. Their goal? Finalize a new deal by July 21.
Finance Minister Francois-Philippe Champagne said the digital tax will not be collected, and a new law will be brought in to cancel it altogether.
Why this matters
Canada is America’s largest export market, even ahead of Mexico. The two countries trade hundreds of billions each year. Last year, Canada bought $349.4 billion worth of U.S. goods and sold $412.7 billion to the U.S.
Any trade tension can hit both economies hard.
Wall Street responded fast. U.S. markets jumped on Monday morning as investors saw hope in resumed trade talks.
What was the tax, anyway?
The Digital Services Tax (DST) was announced in 2020. It aimed to tax big tech companies making money in Canada but not paying fair taxes.
It would have taxed 3% of Canadian user revenue above $20 million. This move followed growing frustration that foreign tech giants earn heavily from Canadian users but avoid corporate taxes.
But the U.S. called it unfair, especially as trade talks were still ongoing. In fact, the Biden administration had already launched a trade dispute complaint earlier this year.
Canada says it still prefers global rules
Canada said its “first choice” was always a global digital tax deal—not a solo move. But with global talks delayed, it planned to go ahead anyway. That changed once Trump turned up the heat.
Now, with the tax dropped and talks back on, both sides are racing to avoid another trade war.
Also Read Donald Trump Ends US-Canada Trade Talks Over New Tech Tax
