Businesses have 'no choice' when it comes to Google ad surcharge
The surcharge comes in response to Canada's digital services tax
A new service tax on advertising with Google is going to have a significant impact on many businesses, starting as early as this fall.
Michael Micacchi is the founder of a Waterloo-based business called MeetMichael Digital Marketing & E-Commerce that provides digital marketing and advertising services to clients. He says businesses big or small will feel the pressure once the surcharge is implemented.
"If someone can afford to invest $500 a month into advertising or $5,000 a month into advertising … anything additional like 2.5 per cent is going to have an effect on what they're doing," he said.
In October, Google will start implementing a 2.5 per cent surcharge for any businesses advertising with Google in Canada. That surcharge will cover some costs of abiding by Canada's Digital Services Tax (DST), Google said in an emailed statement.
"We will continue to pay all the taxes due in Canada and elsewhere, and we encourage governments globally to focus on international tax reform rather than implementing unilateral levies," the statement said.
Multinational digital companies such as Meta, Alphabet, Facebook and Amazon are not based in many of the countries where they conduct business, allowing them to avoid paying certain taxes.
The federal government sees the digital services tax as a way to bring the tax code up to date and capture revenues earned in Canada by firms located abroad.
Micacchi says a small business looking to advertise used to have better options. Now, most business owners have no choice but to advertise with Google and Facebook.
Micacchi is concerned how the additional costs will impact his clients, who often advertise through Google.
"I struggle to say that if you're not advertising with Google, you're probably not doing the right thing if you're advertising at all," he said.
"That's where the problem becomes apparent for me, they almost have this stranglehold on us, like we have to be in their ad ecosystem. We don't really have anywhere else to go."
Jasmin Guénette, vice president of national affairs with the Canadian Federation of Independent Business, agrees with that sentiment.
He says there is already a long list of increased costs imposed on small businesses — and small businesses are at Google's mercy.
"Google is such a dominant player that it can [add a surcharge] and many businesses will feel that they just have no choice but to pay this extra fee," he said.
"We have to remember the consumer has changed quite a bit, especially since the pandemic … being present online is quite important and so many of them will continue to advertise because they feel that's the only way they can reach out to their customers."
He says those looking for other options when it comes to advertising could find relief in places like Instagram and Amazon. But even then, other platforms often come with their own set of hurdles.
"Online advertisement is quite concentrated into the hands of some key players," Guénette said.
"At the end of the day small businesses don't have that many options to turn themselves to."
'We've been overlooked'
Canada faces pressure on this tax both domestically and internationally, especially from its closest trading partner.
The U.S. has been particularly hostile to the Canadian digital services tax. In a letter released in September by members of a U.S. House of Representatives committee, it said a potential DST on big tech companies is an "unusually aggressive and discriminatory approach" by Canada.
Micacchi says he'd like to see more focus on how the policies will impact small businesses.
"Is anyone actually shocked that Google turned around and put this additional fee, or a portion of it, onto the shoulders of small businesses and businesses?" he asked.
"For now, I just feel like we've been overlooked."
Listen | Why small businesses can expect to pay more to advertise on Google this fall:
ABOUT THE AUTHOR
With files from Peter Zimonjic