Ottawa: In a significant policy reversal, the Canadian government has rescinded its proposed Digital Services Tax (DST) just hours before it was scheduled to take effect, following sharp warnings and retaliatory threats from the United States. The move comes amid efforts to revive stalled trade negotiations between Ottawa and Washington, which were frozen after U.S. President Donald Trump threatened to impose punitive tariffs if Canada moved forward with the tax.
The tax, which would have imposed a 3% levy on revenue earned in Canada by large multinational technology companies primarily American giants like Google, Meta, Amazon, and Apple had been a point of contention in bilateral discussions for months. The Canadian government had planned to retroactively apply the tax from January 2022, a decision that Washington denounced as discriminatory and economically hostile.
In a statement issued on Sunday night, Canadian Finance Minister François-Philippe Champagne confirmed the decision to withdraw the tax proposal, describing it as a “strategic decision” made in the interest of preserving economic stability and safeguarding Canadian industries from U.S. retaliation. “While we remain committed to ensuring that multinational tech firms pay their fair share, we believe this step will allow for a renewed spirit of cooperation with our closest trading partner,” Champagne said.
Following the announcement, President Trump declared that trade talks with Canada would resume immediately and set a firm deadline of July 21, 2025, for both sides to finalize a new agreement. U.S. Commerce Secretary Howard Lutnick praised Canada’s decision, stating that it demonstrated “a willingness to engage constructively and recognize the mutual benefits of fair trade.”
The reversal has received mixed reactions across Canada. Business associations, including the Canadian Chamber of Commerce, welcomed the move, stating that the tax would have increased costs for consumers and potentially triggered a damaging trade war. “This decision brings relief to Canadian small businesses that rely on digital platforms and to consumers already grappling with inflation,” the Chamber said in a press release.
However, opposition politicians and public policy advocates accused Prime Minister Mark Carney’s administration of bowing to U.S. pressure and undermining Canadian sovereignty. NDP leader Jagmeet Singh criticized the timing of the reversal, calling it “an embarrassing climbdown that raises questions about Ottawa’s ability to defend national interests in global economic matters.”
The Digital Services Tax was initially introduced as a stopgap measure while awaiting a multilateral tax framework under negotiation at the OECD. However, the global consensus on taxing digital multinationals has progressed slowly, prompting several countries including Canada, the UK, and France to introduce their own interim measures.
In the Canadian context, the proposed DST was expected to generate over CAD 3.4 billion in revenue over five years. Its abrupt withdrawal will leave a revenue gap, which Finance Canada has indicated will be addressed through alternate taxation strategies to be unveiled in the upcoming fall fiscal update.
Beyond trade, the diplomatic optics of the tax reversal are being carefully watched. The episode marks a critical juncture in U.S.-Canada relations, with both countries keen to finalize a modernized trade pact amid global economic uncertainty and shifting geopolitical alliances.
For now, the path to a renewed trade agreement appears reopened, but negotiations will be closely scrutinized in the coming weeks as both nations attempt to balance domestic expectations with cross-border compromise.