When this year’s federal budget was released in March, CICC issued a press release saying that we were cautiously optimistic that a proposed 27% reduction in credit card fees would address the financial injustices convenience retailers are forced to pay to process credit cards. Our healthy skepticism was informed by years of advocacy and the knowledge that the devil would be in the details.
Unfortunately, due to rumblings coming out of Ottawa recently, that optimism has turned into concern as we are hearing that Finance Canada is eyeing a very low sales threshold that could ultimately alienate many convenience stores in Canada.
Ottawa needs to understand that this has a ripple effect and impacts communities on every corner. That’s why we’ve ramped up our advocacy on this issue to fight for the industry by explaining just how unique Canadian convenience stores are compared to other retailers.
In a letter to Finance Minister Chrystia Freeland, we highlight that while many of Canada’s 25,000 stores fall under large brands and national chains, others are independent franchisees. Regardless of the corporate structure, every convenience store in Canada is a small to mid-size business.
As result, any proposed changes should apply to all retailers on a location-by-location basis, regardless of their ownership structure. Why should the local convenience store be treated differently than the dry cleaner or coffee shop next door? Is their survival less important? Additionally, regardless of the ownership model, no convenience store in the nation has the bargaining power of the big box corporations to negotiate high-volume rates.
That means convenience stores pay higher processing fees compared to most other retailers and it’s important the Finance Minister keep these “mid-size” businesses in mind when considering the threshold for eligibility of a new interchange rate.
Additionally, convenience stores collect a disproportionate amount of taxes for government—42% of the industry’s $54 billion of sales—while other typical retailers, collect only the GST/HST at the point of sale. In comparison, the U.S. convenience industry collects just 22.8% of all sales dollars in taxes.
It’s imperative that if Finance Canada is planning to use revenues as the metric for determining eligibility for a reduced interchange fee, the threshold be defined in terms of pre-tax revenues, plus a gross-up for the taxes collected by the business. This would be the only way to determine which businesses qualify, as credit card companies will not know at the beginning of the year what the total annual sales will be for a given merchant.
This would in essence level the playing field by putting c-stores on the same level as other businesses which sell products that are only subject to HST. Such a threshold would avoid inadvertently penalizing our stores for retailing products that are heavily taxed.
We know that the credit card processors have been conducting an intensive advocacy campaign the past few months on this issue, as they don’t want to see an end to the lucrative practice of getting merchants to fund their marketing programs through exorbitant fees to process credit cards. That’s why the government is considering a very low threshold, to impact the micro businesses in Canada.
But the reality is that processing fees are a very high, and growing, cost of doing business for c-store retailers. In fact, it’s now our second-highest cost of doing business.
Any solution announced by the government must be inclusive rather than exclusive. That’s not what the credit card companies want or are proposing, but that’s what we are advocating for to both officials and the minister at the Department of Finance.
Let’s hope the Finance Department opts to solve a major problem of one of its revenue-generating clients and doesn’t cave into the pressure put on by the banks and processing companies.
After all, there’s a lot at stake.
If they choose a low threshold without a recognition of the uniqueness of Canada’s 25,000 c-store retailers, they will be putting Canadian communities in jeopardy, forcing some retailers out of business and losing much-needed tax revenue as a result.
The choice is simple. But simple doesn’t always translate into good policy or politicking.