OTTAWA -- With more and more budding entrepreneurs plying their trades online, Canada's underground economy is soaring through cyberspace in a big way, experts say.
"There's always been an underground economy with some businesses, but the Internet's going to cause a proliferation in the opportunities available," said Rick Broadhead, a Toronto-based expert on electronic commerce. "There's a lot more people running home businesses through EBay than there were 10 years ago."
The popularity of online auction sites continues to grow at a furious pace. Canadian use of such sites grew 22% between May 2005-May 2006, according to comScore Media Metrix.
Numbers from EBay Canada suggest one out of two Canadians online last August visited its virtual auction house. More global statistics collected for EBay suggest that the number of people earning all or part of their income on the site almost doubled, with almost 750,000 people relying on EBay sales to earn their daily bread.
This has significant impacts on governments' ability to get their cut of business through income and sales taxes.
Most studies estimating the scope of Canada's underground economy date back to the mid-1990s, before e-commerce exploded. A Statistics Canada report at the time issued a prescient warning of the underground economy's impact.
"The underground economy is certainly not a problem to be ignored, by statisticians or by tax collectors," the report said.
Royal Roads University Prof. Terence Power said estimates of its impact run as high as $200 billion a year, or 20% of Canada's GDP. His personal estimate is closer to 15%.
"It means you and I are paying taxes on $150 billion morethan we have to pay," said Power.
Broadhead said e-commerce exacerbates the problem because budding entrepreneurs often won't know their tax obligations, and the government does a poor job educating them.
According to a Canada Revenue Agency website primer, a sole proprietorship must register for the GST if annual taxable revenues top $30,000. Income tax must be paid on all revenue generated through the business.
Inquiries to the federal government around efforts to keep pace with the burgeoning online commerce suggest little in the way of new initiatives. Canada Revenue Agency spokesman Beatrice Fenelon said they have employed a team of electronic commerce audit specialists for several years.
But Power warns that trying to track down small business people and e-entrepreneurs for unpaid taxes is a losing battle.
"I don't know how they're going to control it," said Power. "I don't see how they're going to find a solution until we want to pay our taxes. Most of us do all we can to avoid taxes."
