As a Canadian entrepreneur who has spent decades building technology businesses and advocating for our innovation ecosystem, I’m deeply conflicted about Prime Minister Mark Carney’s decision to repeal the digital services tax (DST). On the surface, it appears that Canada is capitulating to pressure from the U.S., particularly given U.S. President Donald Trump’s threats of retaliatory tariffs. But the truth is more nuanced and, more importantly, deserves a closer look.
The DST was introduced to address a significant imbalance: large U.S.-based digital giants like Google, Amazon, and Meta generate substantial revenue from Canadian businesses and consumers, but pay little or no tax here. Meanwhile, Canadian companies who employ Canadians, pay Canadian taxes, and invest in local communities face a heavier burden.
The Parliamentary Budget Office estimated that the DST would have generated approximately $7.2-billion (about USD$5.3-billion) in revenue over five years. This revenue would have come primarily from U.S. tech firms, with initial retroactive payments totaling around USD$2-billion due by June 30, 2025. Ongoing annual costs to these companies were projected between USD$900-million and USD$2.3-billion, potentially leading to up to 3,000 job losses in the U.S.
At first glance, the DST seems like a step toward tax fairness. However, as the founder and CEO of a Canadian technology company, I’ve experienced the flip side.
More than half of our revenues came from U.S. clients, yet we didn’t pay U.S. taxes because our business operations, employees, and value creation were based in Canada. By the same logic, why should U.S. digital firms pay Canadian taxes if their operations and employment are largely in the U.S.? The U.S. argues that the DST violates the principle of taxing profits where value is created.
Moreover, the DST risked escalating trade tensions. President Trump’s administration viewed the tax as a “direct and blatant attack” on U.S. firms, leading to the suspension of trade negotiations and threats of new tariffs on Canadian goods.
Focusing on taxing these firms misses the real opportunity. The DST is a Band-Aid, not a solution. It does nothing to fix Canada’s underlying economic challenge. We don’t just need global firms to sell to Canadians; we need them to invest in Canada by building offices, hiring Canadians, partnering with Canadian companies, and supporting our innovation ecosystem.
More importantly, we need policies that help Canadian technology firms scale globally while remaining Canadian-owned and based. Creating these policies will have a much greater economic impact on the long-term economic growth of Canada. The real priority should be creating conditions where Canadian scale-ups can compete, grow, and lead internationally, thereby ensuring we keep our intellectual property, our talent, and our economic value here. That’s how we generate sustainable and long-term economic growth.
We’ve seen too many Canadian start-ups become branch plants of American or global firms because we haven’t built an environment that supports domestic companies transitioning from start-up to scale-up. Taxing successful U.S. digital companies may feel good politically, but it doesn’t build the foundation Canada needs for the future.
So, could repealing the DST be considered giving in to Trump? Perhaps. But if it opens the door to a more constructive dialogue with U.S. firms about investing in Canada and if it pushes us to focus on enabling Canadian companies to scale, then it’s the right move.
Economic growth doesn’t come from punishing success; it comes from nurturing our own. Let’s stop the distraction of the DST and get serious about helping Canadian companies thrive in the digital economy.
Adam Froman is the founder and CEO of Delvinia, an innovation company transforming digital businesses.
The Hill Times