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The Great iPod Tax Crisis of 2013

How the cost of an iPod became the signature issue of the budget


 

Last week, Mike Moffatt suggested that the tariff increases introduced in the budget would result in an increase in the price of iPods. The Harper government claimed otherwise. The Globe and Mail subsequently retracted Mr. Moffatt’s original post. And then Moffatt penned a second post to explain his perspective.

I take the Finance Department at its word that iPods have been imported using the 9948.00.00 code, but am uncertain how the CBSA came to this decision in light of the precedent set by the Jam Industries case.

It is hard to believe that on further scrutiny – especially given the potential future tariff implications that didn’t exist before the budget announcement – the CBSA would be able to justify a 9948.00.00 classification for iPods. This certainly warrants further review and clarification by the government, so that importers and consumers can have greater comfort about where they really stand.

The Canadian Press added its reporting.

The federal government is tightening up tariffs on imported products such as televisions and iPods that receive a special exemption when used with computers. Importers owe about $16 million from 2011 alone due to a reassessment of customs duties, according to a memo from the Canadian Border Services Agency, released under the Access to Information Act and obtained by The Canadian Press.

The memo from March 2012 — which includes a handwritten notation to keep “the minister” informed — says the crackdown “will likely result in a significant amount of customs duty being reassessed, and will not be well-received by the importing community.” The agency has ruled importers who use the computer exemption must get certificates from the end users — consumers, in most cases — that certify the product will be used with a computer. No certificate, no exemption, says the agency.

Today, Moffatt presents two CBSA documents and restates his position.

My position that importers cannot meet the requirements of 9948 rests on three straight-forward premises: 1. It appears that sellers of iPods and MP3s are required to collect “end use certificates” from the final consumer on each sale, and be able to present these to the CBSA if audited. 2. The 9948 requirement for “end use certificates” appears to be actively enforced by the CBSA. 3. Retailers cannot reasonably collect these certificates from consumers when they buy an iPod.

These three, put together, make retail sales of iPods and MP3 players ineligible for 9948 and therefore subject to an iPod tariff.

All of this is problematic for the Conservatives because of previous protestations like this and this and this and this and this.

Unchallenged so far are any of the other tariff increases that Moffatt has identified which will increase the price of imported bicycles, baby carriages, school supplies, wigs, USB drives, coffeemakers, rugs, paintbrushes, plastic tableware, sandals, scissors and carving knives.

Update 4:46pm. And now, via the Canadian Press, Sony claims the existence of an iPod tax.

Sony of Canada says Canadian consumers could soon face higher prices on some electronics, such as televisions and iPods, because it’s all but impossible for importers to apply for exemptions from a controversial tariff.

Mark Trylinski, logistics director at Sony of Canada, says importers are being asked to jump through too many hoops in order to qualify for a special exemption from the tariff on the popular products. Trylinski — who predicts a price spike of about five per cent — says companies may also decide the customs duties on some items mean it no longer makes financial sense to import them.


 

The Great iPod Tax Crisis of 2013

  1. We get it, CPC. A significant amount of your current voting bloc is made up of people who can be made to howl when you lable an inclusion in the blank media levy an “ipod tax”, but will accept it when you bring it and use mildly different wording (oh, who are we kidding, you could call it the exact same that was a horror when you claimed Liberals wer doing it). We know. No need to rub it in the country’s face like this.

  2. In
    high margin products such as electronics, where the cost of production is
    relatively low, products are priced at a level that the market (consumers) will
    bare.

    So,
    if a product costs you $10 to produce, and you retail it for $200, you make $190
    margin (to be shared through the dist’n chain).

    Adding
    5% on the $10 adds 50 cents. So, you make $189.50.

    If
    the 5% comes on retail price (doubtful, but nevertheless) you make
    $180.

    Yeah,
    I wouldn’t bother with the paperwork either

    • “High margin products such as electronics”? Sorry, pal; I don’t buy your claim or your numbers (A 2000% markup?). Where do you get this from?

      • His tailbone area.

        There are no manufacturers making anywhere near that kind of markup these days as market pressures from Chinese producers and mass retail have forced many of the players to run on limited margins more in the 10-20% range (if that) and aim for volume over margin. Even on the high end, Apple caps out at 39-45% and they’re generally considered to be the market leader in that regard that every other business envies.

      • Where do you get this from?
        Oh, well since Moffatt is an “economist” I just decided what I wanted my answer to be, and cherrypicked to get the desired outcome. Isn’t this how it works?

    • Or you raise the price to $200.50, and the consumer pays more. This is exactly what will happen. No company will ever swallow the cost of extra fees/taxes, unless it absolutely has to.

      • Product lifecycle. Look it upon wiki.
        Only in the mature stage of a product’s life when they are competing on cost will this necessarily be true.
        Apple typically earns very high margins,relative to lesser names who compete more on price.

  3. Paging Rick Omen, who believes this all supports Canadian-made industry…. want to tell me where I can get a Canadian-built iPod?

    (hint: it’s a trick question. You can’t.)

    • Why do you need a Canadian-built iPod? Why can’t you just pay the duties like everyone else? And really, do you think that reducing tariff’s on imported goods will make it more or less likely that similar goods would be manufactured here? Why is it again that you think we should be subsidizing Chinese manufacturers?

      • Subsidizing Chinese manufacturers!?! They neither gain nor lose from this.

        Microeconomics 101: if business has the market power to pass on a cost to a consumer, it will.

        Foxconn has the market power to pass the tariff increase on to consumers because there is no competition. They’re all built in China. They couldn’t give two sh*ts what the tariff is, they’ll just raise or lower their price to lock in their profit margin. The tariff increase gets passed on to the consumer. And the government caused this.

        “Our government’s top priority remains the economy. During this fragile economic recovery, the last thing Canadian families and consumers need is a massive new tax on iPods.”
        -James Moore

        Care to square that with this?

        • By your logic then Foxconn could simply triple the price of everything they produce, and simply increase their profits without any negative effects. Which obviously isn’t true.

          • Ok, then by your logic, the opposition’s allegedly proposed iPod tax wouldn’t have raised the cost of an iPod to the consumer as Foxconn would have ate the tax. Which then renders Mr. Moore’s musings as somewhat ridiculous.
            Agree? Or care to rethink your logic?

      • Why do you support the Conservative permanent tax on everything? I thought no taxes were good taxes?

  4. Interesting that the allegedly unbiased media is now more interested in debating if this is an “iPod tax”, instead of discussing weather it’s good policy or not. I guess the Tories have already won the latter debate, so they need to find some other way of “embarrassing” the government. Just makes the MSM even less relevant.

    • Tariffs are a terrible policy. It’s selectively taxing consumption. Tariffs should go to zero, and replaced with VAT.

    • Biased media!? The two people speaking are an economics professor from UWO and a representative from Sony. And before we can discuss whether it’s good policy or not, we have to find agreement on just WHAT THE POLICY IS. Are the Tories increasing tariffs on MP3 players – yes or no? If ‘no’, then will they give direct reassurances to Sony that they will not be hiking tariffs on electronic devices?

    • Yes, a storm is certainly brewing. More because officials came out and spoke about this tariff (or rather the lack of it) before they knew what the hell they were talking about.

  5. A permanent tax on everything! The conservatives are killing jobs with their economy destroying tax increases!!!!!!1!!!

  6. Harper’s Conservatives gave us the iPod tax! What a great line to be used by the opposition in the 2015 election.

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