Canada is losing millions of dollars in uncollected customs duties, even following a 2017 report that urged a crackdown on tax evasion at the border, according to an audit.
A Canada Border Services Agency report, “Evaluation of the Duties Relief and Duty Drawback Programs,” indicated that inspectors reported that importers avoiding tariffs were responsible for “significant non-compliance," according to Blacklock’s Reporter on May 1.
The report said attempts at enforcement had resulted in roughly 32 major lawsuits by companies challenging tax assessments, adding up to a total of $229 million.
“Verifications have revealed significant non-compliance,” said the report. “Over the past five years there have been mounting legal challenges which are a direct result of the Agency ramping up verification of Duties Relief Program supply managed goods participants as applications for relief involve very high monetary values,” according to the audit.
“These verifications have revealed significant non-compliance resulting in companies losing access to large sums of duties relief which has been challenged in court.”
Under the Duties Relief Program implemented in 1996, licensed importers who are transshipping goods through Canada are permitted to bring containers across the border and are able to avoid paying duties or surtaxes, but are subject to audits. The report said, “Challenges were encountered.”
In one case in 2022, according to Federal Court records, an Ontario company imported frozen chicken “using a duties relief license that did not belong to them” to avoid taxes of $230,635.
In 2017, an auditor general’s report, “Customs Duties,” concluded that the government had “insufficient controls to ensure duties were paid.” At the time, inspections found importers were misrepresenting shipments “more than 20 percent of the time” to shirk duties worth roughly $42 million a year in tax revenue for the federal government.
The auditor general said it had “identified two reasons that may have allowed importers to be non-compliant.”
“First, the Agency’s controls over imports were not working. And second, it appeared that some importers could circumvent the rules to their own advantage.”
The auditors found that in 2015, importers were bringing certain goods controlled by quotas into Canada “without permits and without paying the right amount of customs duties.”
“These quota-controlled goods included dairy, chicken, turkey, beef and egg products for which importers would have paid $168 million in customs duties,” said the report.
Tariffs are worth billions of dollars to the federal government, despite representing a small portion of total federal tax revenue. According to “Public Accounts,” $5.2 billion out of a total $413 billion of annual revenue are customs duties.
The federal government collects its largest portion of revenue from personal income tax at 48 percent, followed by corporate income tax at 19 percent, and GST at 11 percent.
At Confederation, customs duties accounted for roughly half of all federal revenue, and remained so until income tax was introduced during World War I.
