Confusion over 'iPod tax' deepens

It's still unclear whether Canadians will have to absorb a five per cent tariff when they purchase an MP3 player in 2015, even though many people don't even usethe music devices anymore.

In its 2013 budget, the government removed a tariff-free category on many goods manufactured in about 70 countries, including China where most MP3 players are made.

The idea of an MP3 tax is a particularly sensitive one for the government because Finance Minister Jim Flaherty had regularly pilloried the NDP for what he called its proposed tax on iPods.

The NDP had suggested a levy, similar to the one on blank CDs, that funnels money to artists whose music is vulnerable to piracy — illegal copying or downloading.

Last April, Flaherty, speaking in the House of Commons, said, "Just to be clear, Mr. Speaker, there is no tax on iPods, even your iPod."

But, emails obtained through an access to information request by a business professor seem to show that the Canada Border Services Agency (CBSA), which regulates tariffs, differs sharply on whetherthe portable music-playing devices will face a tariff next year.

Mike Moffatt, of the University of Western Ontario in London, detailed the results of his access requests in an article published Tuesday in Canadian Business magazine.

Moffatt reproduced emails from CBSA about an earlier article he'd written pointing out the government had removed tariff protections from about 70 countries on a variety of goods, including MP3 players, in its 2013 budget.

Michelle Rempel, the parliamentary secretary for environment, told host Even Solomon of CBC News Network's Power & Politics in April,"The devices — for lack of a more technical term — that plug into a computer are exempt from this [tariff]."

The emails Moffatt obtained show the CBSA thought his article was "spot on" and "hit the nail on the head."

At one point, Moffatt learned, Doré Charbonneau, then a communications manager at CBSA, prepared a draft version of a media response on the day Rempel spoke on Power & Politics.

"The CBSA would like to clarify the tariff classifications for iPods as well as other electronics," Charbonneau wrote, but the media response was never released.

She continued, "It’s important to clarify that iPods do not qualify for the provisions of tariff item (TI) 9948.00.00. In order for goods to qualify for importation under TI 9948.00, they must be for use in computers and enhance the functions of the computer."

On Tuesday, Moffatt said the issue is still in limbo as government officials can't seem to agree whether 9948 applies to MP3 devices.

"You'd think the CBSA — the people who enforce the rules — if they say it doesn't apply, it shouldn't apply. But Finance hasn't changed their position at all," Moffatt said.

Moffatt pointed out the real battle probably isn't over MP3 players, but wide-screen TVs, a much bigger market. For years he explained, Sony, Panasonic, Wal-Mart, and other electronics importers, have been bringing TVs into Canada tariff-free on the grounds they plug into computers.

In 2008, CBSA told the importers they owed $16 million in back taxes, and the dispute has been ongoing.

Moffatt said the case will eventually end up at a tax tribunal.

"Finance and the government have basically scuttled the CBSA's case. It's going to be hard for the CBSA to argue with a straight face, 'You're not allowed to use 9948'. Sony is going to [use] Michelle Rempel, who was on P&P, saying, 'If you can plug it into a computer, it's eligible for 9948.'"

Glenn Thibeault, the NDP critic for consumer protection, told CBC News: "They've put a tax on iPods and 1,200 other goods."

He claims the government plans to raise $33 million annually from adding tariffs to a variety of imported goods.

"If they're having a hard time understanding this [tariff] between agencies, imagine the trouble Canadian consumers and businesses have trying to understand this," he said.

A spokeswoman for the Finance Department said in an email to CBC News that "iPods have been coming into Canada tariff free for many years. Our government will ensure this continues so that there are no tariffs on iPods or other listening devices imported into Canada."

Kathleen Perchaluk continued, "Internal email exchanges between CBSA bureaucrats do not constitute government policy."

Moffatt suspects the government may add an exemption specifically for MP3 players in its Budget 2014.

Most people now listen to music on smartphones, which are in a different tariff category.

"By the year 2015," he said, which is when the tariffs are supposed to be in place. "There may not be very many iPod sales in general."