Is the government planning to audit my iPod use? -

Is the government planning to audit my iPod use?

And if not, what exactly is Jim Flaherty talking about?


Last week Finance Minister Jim Flaherty made a well-publicized appearance at the Standing Committee on Finance (FINA) where he discussed a number of issues, including the possibility of having a national securities regulator. Given the great deal of attention the so-called iPod tax has received, it is not surprising that Liberal MP Scott Brison made it the focus of a question. Unfortunately, the Minister’s response has left us with more questions than answers.

This exchange takes place at the 22 minute mark of the webcast of the FINA meeting. (Note: there is no official transcript yet, so I have transcribed it as best I could):

Scott Brison: You’ve said that iPods will remain exempt from tariffs under tariff item 9948 but CBSA [Canadian Border Services Agency] is now telling importers that products under item 9948 require end user certificates to be eligible for the tariff exemption. Importers are telling us that collecting these end user certificates is not practical. Can you confirm if the tariff exemption for iPods under 9948 will depend on a requirement to collect end user certificates? Yes or no?

Jim Flaherty: You’re talking about a process problem. Substantively there is no tax on iPods and end user certificates have been required for a long, long time on a long range of projects. Some vendors have obeyed the law and some haven’t. And some who haven’t obeyed the law have found themselves in some difficulty. That’s what happens.

Minister Flaherty’s response, on the surface, makes sense. There are, however, at least three issues with this answer:

  1. The ongoing dispute between the 9948 Fair Treatment coalition and the CBSA, where the coalition said the CBSA told importers that end use certificates were not necessary.
  2. I have yet to find a single retailer who has asked for or collected end use certificates from consumers. I have called at least a dozen retailers, all of which have no idea what I am talking about. Are any of these vendors the retailers the Minister mentions?
  3. The collection of end use certificates by retailers serves no obvious purpose.

Some history of the 9948 tariff exemption is helpful. Back in the 1980s computers entered the country tariff-free, but computer parts did not. This put Canadian assemblers of computers at a disadvantage, because they had to pay tariffs on the parts they used, whereas companies importing whole machines did not. The 9948 tariff exemption allowed Canadian assemblers to compete on a level playing field with their overseas counterparts.

Having end use certificates makes sense for computer assembly. An importer brings over a few thousand speaker systems on behalf of an assembler. These speaker systems could be used either for the assembly of computers or for individual sale as stereo equipment. The assembler signs a single end use certificate for the entire shipment of speakers, stating the company will use them as computer equipment. The assembler then passes that certificate along to the importer. The CBSA can easily audit the importer to ensure they have the certificates and audit the assembler to see that they are using them as computer equipment and not selling them for other purposes.

This is a far different scenario than MP3 players and televisions sold to retail consumers. When an importer brings over MP3 players, they either sell the shipment to the retailer directly, or to a wholesaler who then sells them to a retailer. Retailers sell the MP3 players to consumers, each of whom has to sign an end use certificate that bind them to use MP3 player in certain ways but not others. All of these certificates are then somehow passed along from consumer to retailer to wholesaler to importer. The importer then collects these thousands of certificates and creates an iPod registry that the CBSA can then audit, if it so chooses. In order to ensure compliance, the CBSA would also have to audit the individual consumers to ensure the MP3 players are being used in a manner that complies with the end use certificate. I cannot imagine the CBSA ever auditing consumers. In that case, what possible purpose is served by this end use certificate requirement?

Given all of this, Flaherty’s response raises more questions than answers. In particular, I’d like to ask the Minister the following:

  1. Have any Canadian retailers collected end use certificates on sales to Canadian consumers?
  1. Is it true that the CBSA informed importers that end use certificates were not required for televisions and other consumer electronics? If so, why?
  1. What is the purpose of end use certificates for consumer electronics sold at retail?
  1. How will the CBSA audit end use certificates for consumer electronics sold at retail? Will those audits involve the CBSA contacting individual consumers?

This article appeared first on Canadian Business.

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Is the government planning to audit my iPod use?

  1. Is the government planning to audit my iPod use?

    More likely if they audited a company that had your end use certificate, they’d randomly send you a letter asking if you filled out the form.

    Can you now move on?

    • Yeah, but the thing is, the 9948 exception is for equipment that enhances a computer, which is not something an iPod does. Other than the example above, I can think of a school board buying a bunch of flat-screen TVs to serve as computer screens so that teachers can use them in class. But I would not get the same exemption for the save TV if I bought it to watch hockey.
      It looks to me like Flaherty is trying to get around his own rules. If he really doesn’t want to tax iPods, what keeps him from just exempting the tariff code iPods rightfully belong to from a tariff? It would be much simpler.

      • These whole “iPod tax” threads are more politics than economics. So, why they are posted here is beyond me.

        If the “economists” want to elaborate why they feel that using import tariffs to support developing countries, or to promote free trade negotiations with China is the wrong approach, economically, then be my guest.

        Equating an import tariff with the tax the Libs/NDP promoted to compensate for copyright infringement is disingenuous at best.

        Pure politics. Move on.

        • This comment bears an uncanny resemblance to the government’s talking points. I’m surprised you didn’t throw in a dig about his former involvement in the Green party.

          • Frankly, I thought his failure to disclose his outstanding offer to provide policy advice to all Liberal leadership contenders when appearing before Committee to be more serious.

          • So you are with the government – that was easy. So now you are accusing him of being a Lib partisan – please flesh that one out for me. And if you could explain why you’re being so stubborn on this, please?

          • Nope, not with gov’t or any party. Just don’t like the way this issue is being portrayed. Looks to me like a tax/audit issue – and advocacy on behalf of some industry types.

            Fishing out? MM appeared before some House Committee to talk about this “iPod tax”. When a Cons member asked him about his GPC background, he offered an account of his political history/affiliations. Including being GPC London North Centre riding Pres (I think including or close to when famous Harper hater E May ran there in a by-election) , and indicated previously he was a PC, and voted for Clement at some party convention.

            What he failed to mention, however, is his most recent political involvement. [Google the title for the complete text]

            Should Academic Economists Consult and Endorse Political Candidates? (And my Deal to the LPC)

            The Deal I am Making with LPC Leadership Candidates

            I have already discussed this “deal” with members of the leadership teams of three of the candidates. In the interest of fairness and disclosure, I will open this deal up to all.

            I am happy to meet with leadership candidates and/or their teams, if they wish to bounce policy ideas off of me. All proposals they make will be held in confidence. Think of it as a way to beta test policies before they are floated in the media. I will be happy to let you know which policies make sense, which policies need work and which policies will get you mercilessly mocked by Gordon, Milligan, et. al.

          • What’s with the name change? Wow – he’s really being sneaky about offering policy critique to the Libs eh? If you follow Moffat and Gordon and a few other economists on twitter, they give political parties analysis constantly. So, if you think you’ve found some secret political allegiance you look pretty silly.

          • Why the name changes? Because I keep getting blocked by the moderator.

            You asked. I replied.

          • Kind of like appearing in front of the committee and being treated with hostility eh? lol

          • Like a memorable and iconic setting sun, you once lamented my banishment…:)

  2. Since you want to make this about me…

    I have always been very upfront about my past political affiliations.

    RE: “indicated previously he was a PC, and voted for Clement at some party convention.”

    Actually, I indicated that I belonged to the Federal *Conservative* party after the merger. That “some party convention” was the leadership convention in Toronto that elected Mr. Harper party leader. Interesting how this part was downplayed.

    I have, and continue to provide, policy advice to whoever asks: New Democrats, Liberals, Green and, yes, Conservatives. You’ll note that before the iPod tax issue, the only time my work had been cited in Parliament was by the Conservative Party. (Feel free to look it up) The issue was the Electro-Motive dispute and I spoke to several Conservatives in Ottawa on the issue.

    How is it that when I write a piece that supports the government’s position, I’m a trustyworthy source of independent research, but when I write a piece that does not, I’m a partisan hack that can’t be trusted?

    • Thank you for your lengthy defense of yourself. I trust this will not be censored, nor deleted. And I thought you don’t read comments on your postings…

      I have suggested you are engaging in politics, not economics. In fact, just yesterday, you exchanged tweets with Ian Brodie, suggesting that your efforts in causing trouble to the Gov’t was, ironically, because of him. He taught PoliSci (not economics) at Western, as you well know as a former student.

      You have represented yourself as an “expert” on tariffs to the Public Editor at the G&M, which she referenced in her reply to why your erroneous and improperly researched blog on Economy Lab on this very topic was pulled, and later replaced with a more fulsome response with some mea culpas. You have also spent some time there criticising Mark Carney over his monetary policy, dead cash, “flirting” with politics. Yet, I see nothing in your c.v. indicating you have any sort of expertise on these topics. You represent yourself as an “academic economist” yet your recent PhD is in Management Science, completely different.

      If you are going to freely throw mud in areas where your lack the expertise, expect some back splatter.

      And why did you leave G&M btw?

      • If you had fully done your research, you’d know the answer to all of those questions. In particular, you’d know why I thanked Dr. Brodie.

        I’d be delighted to discuss these questions further in private. You know how to reach me.

        • Well, here’s your opportunity to explain this exchange of tweets, publicly:

          Ian Brodie ‏@irbrodie 30m

          Thanks RT @MikePMoffatt Ironic thing about all the trouble I’ve caused the gov RE iPod tax is I wouldn’t be where I am today w/o @irbrodie.

          Mike Moffatt ‏@MikePMoffatt 21m

          @irbrodie You’re welcome!

          • 1. My pieces on the iPod tax have clearly annoyed the government (as illustrated by my FINA appearance)

            2. Ian Brodie helped me get where I am today, which you should already know about had you been thorough in your research.

            That’s the last I’ll clog up this comment board with this. I’d be happy to discuss with you privately, Dorothy. I know you know how to reach me.

          • It’s Derek, btw. Western MBA 1989 in case you’ve forgotten. Looking forward to the new Dean.