The IT sector is likely to play a role in this year’s Canadian federal election, the writs for which were issued on Aug 2. Netflix, Inc. NFLX came into focus when a tax on digital streaming became one of the main agendas.
Yesterday, Canada’s present Prime Minister, Stephen Harper, stated in a Twitter TWTR video his stance on the ‘Netflix tax’ issue. He reaffirmed that his party is against taxing streaming services like Netflix and Google’s GOOGL YouTube. Harper also stated that he himself is an ardent Netflix viewer with shows like Breaking Bad being one of his favorites.
He indicated that some other parties (New Democratic and Liberal) had proposed the taxation. However, both the opposition parties stated that they had no intention of imposing such a tax. In fact, NDP Leader Thomas Mulcair counteracted Harper’s statement saying that it was the Conservative party that introduced the tax on Apple’s AAPL iPod back in 2012 despite claiming that the tax will not be levied at the time of campaigning.
Also, in 2014, Harper’s government had proposed the idea of taxing foreign streaming providers in order to level the playing field between Netflix and domestic operators.
Netflix is a U.S.-based company and is not under the purview of the Canadian Radio-television and Telecommunications Commission (CRTC). The regulator intended that the company should contribute to the Canadian Media Fund, similar to the local service providers. However, Netflix stated that any taxes on its services will be passed on to customers in the form of increased prices (which are very low at present). Nevertheless, CRTC has rejected the Netflix-tax three times so far.
However, Canada is not the only nation to consider the taxation on streaming services. Recently, a 9% tax was levied on Netflix and similar services even in Chicago.
The election that is scheduled to be held on Dec 19 will have one of the longest campaign periods (11 weeks) in Canada’s history. It’s noteworthy that Netflix, which entered the Canadian market only in 2010, is now featuring prominently in the country’s election campaigns. Per a 2014 report, Netflix had penetrated over 30% of the Canadian market (4.6 million in 2014). In fact, while the streaming service provider is still not profitable in most countries outside the U.S., Netflix started making profits in Canada from 2014 onward. In the recently reported second-quarter results the company revealed that its Canadian operations are generating close to 30% margins.
Shares of this Zacks Rank #3 (Hold) company rose 2.21% in yesterday’s trading session, gaining from positive investor sentiments.
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