Tax Attorney on Why HST is Necessary
At the 2005 National Sales Tax Symposium David Robertson presented a paper that compared the current taxation system with a value added tax. His findings suggested that “the VAT is more equitable, less regressive, less susceptible to evasion and does not limit international competitiveness and domestic prosperity in the dramatic way that RSTs do.”
Follow this link to read SALES TAX HARMONIZATON: THE FACTS & NOTHING BUT THE FACTS
Below David gives a brief example of how a harmonized tax can help Provinces:
I realize that because of the broadening of the tax base, the conversion from PST to HST is unpopular. However, it is a very important step from a public and tax policy perspective.
To provide you a practical example: Last week a US client contacted me. They are looking to put a facility in Western Canada. Their total up front investment will be about $20M to construct and commission the new facility. The facility will employ 50 full-time employees year-round, and an additional 50 people during certain seasons. The question the client put to me was: Are there any tax reasons why it would be better to put the facility in Calgary versus Vancouver?
BC and Alberta’s corporate income tax rate will both be at 10% in 2011 — when the facility will be constructed — so there is no tax advantage there.
Both BC and Alberta have eliminated their corporate capital tax, so once again, one province does not have an advantage over the other.
However, historically, BC has had PST — a sales and use tax — which taxes business inputs. Alberta does not. Historically, I would have told the client to put the facility in Alberta because if they invest $20M in constructing their facility and purchasing the equipment to be used within it, they would face a PST cost in BC between $700,000 to $1.4 M. They would not face this cost if they put the facility in Calgary.
With the elimination of PST in British Columbia and its harmonization with the federal GST/HST, this competitive advantage that Alberta currently has will be eliminated. The client can build the facility in British Columbia, and bring with it 50 brand new full-time and 50 brand new seasonal jobs to the province.
The same issue arises for the film and high tech industries. Those industries currently pay PST on all the equipment they purchase and rent (i.e. computers, lighting equipment, boom trucks, computer servers, computer software, etc.). BC competes with Ontario — particular for film work and the high paying jobs that come with it. When Ontario announced that it was eliminating its PST and harmonizing with the HST, British Columbia truly had no choice but to do the same.
When the premier and finance minister of British Columbia said that their government chose to harmonize to preserve and create jobs in British Columbia, this wasn’t some political platitude. They truly were harmonizing to preserve and create jobs in BC.
David Douglas RobertsonPartner – Taxation
Fasken Martineau DuMoulin LLP
Barristers & Solicitors
(15 votes, average: 2.40 out of 5)
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Great article. Logical and clear… five stars!
If Alberta has only GST and no PST, how can either a harmonized or non-harmonized tax in BC be better when with the PST you have a total of 7%PST + 5%GST = 12% (simple calculation) and with the harmonized you still have a total of 12% with 2 taxes simply added together (7+5)? The only savings that I can see for the business is the savings on tax management costs because they are only calculating for 1 tax (HST) instead of the current 2 taxes(GST +PST). In the end the cost of building the facility with the HST is still higher because of the increased taxable items under the HST. Have I missed something?
What about our sovereignty as a seperate province? Canada is a country made up of seperate states that are joined in unity to form a country.But that unity has limits. We must be able to be independent and seperate and not controlled by people that do not live here in the province. We ahould be able to control our own destiny and fine tune our taxes to our needs, not the needs of the country as a whole or the needs of other provinces. To attract business as stated in the article above, British Columbia would have the ability on its own to chage the tax structure to attract new business. Some things are worth preserving, no matter what the cost. In the long run, the old adage about getting what you pay for applies.
@ Colleen – Yes, you’ve miss something. Go find out what HST is about before you say the cost of taxable items to a business will go up… You’re kinda missing the point.
Colleen you have missed something > businesses will now be able to claim on PST, which will naturally encourage investment – be it in the form of higher wages, more jobs, better tech. Also, this will encourage prices to drop. These are laws of economics, the liberals aren’t arbitrarily giving us a tax. It would be political suicide – don’t people understand that this is the worst thing they can do as far as gaining favour as political party but the right thing to do as a responsible government.
Read the paper that is linked to this article – it explains why wee need an HST and it was written in 2005.
Andrew
Mark, with your concern about provincial attonomy and sovereignty, please keep in mind that both Ontario and British Columbia have signed Tax Collection Agreements with the federal government with respect to their provincial individual and corporate income taxes, and yet, each province retains full attonomy over their provincial income tax rates and provincial tax credits. With HST, there is no ceding of power by the provinces to the federal government. The benefit of these tax collection agreements (both for GST/HST as well as income tax) is that is eliminates government duplication and simplifies compliance for taxpayers and businesses. Specifically, it is thanks to these agreements that we only file one income tax return annually with the Canada Revenue Agency, and not two (one with the federal government, one with the province). HST eliminates the duplication that existed under the PST system as in both BC and Ontario, most businesses were required each month to file two separate sales tax returns — a GST return with the federal government and a PST return with the provincial government. Merely because Ontario and BC have entered into tax collection agreements with the federal government (and the income tax tax collection agreements go all the way back to the 1950s!), does not mean the provinces have ceded any legislative authority to the federal government.
Well that is somwhat of a relief Dave. However, are we now not letting Revenue Canada take over our lives completely? Revenue Canada agents are much like IRS agents in the USA and they are all known to be cold and callous and without a conscience. There are horror stories attached to both the IRS and Revenue Canada.
Mark G.
If you have a tax system, there will always be a tax administration and tax auditors. Whether it is the Canada Revenue Agency or the British Columbia Consumer Taxation Branch, any audit will be uncomfortable and unpleasant. That being said, HST eliminates the duplication for British Columbia taxpayers of having to pay for two tax administrations — the CRA federally and the British Columbia Consumer Taxation Branch provincially. Less government duplication is better for all taxpayers.
Personally, I really don’t know what to do with the new imposed HST. Before I make the pledge of NO HST, I wanted to learn more about it. But to make it easier, I wanted to make it into a pro’s and con’s form.
From reading this article, I am just beginning to understand it; although the bigger picture is attracted business investments and being more competitive against other provinces, the majority of the burden still rests on the general public who now has to pay even more for entertainment, services, and day to day things. Why am I still not convinced that HST can do more good than harm? How do the general public pay for these “luxury” items when there is increased morgage rate to pay off, higher prices for healthier foods, increased transportation costs???
from the following websites, I have gathered the information listed below: (http://hst.blog.gov.bc.ca/faqs/hst-basics/ and article from Vancouver Sun, Critical fact missing from HST coverage by Jean Swanson)
PROS
- NO PST (7%) and HRT (Hotel room tax 8%)
- makes BC business (especially BC’s resources and manufacturing companies) more competitive as NO TAX on business inputs and exports and also reduces costs of production
- reduce administrative costs for BC taxpayers and business as HST
- “with time” may generate economic growth, more jobs, more revenues, improve public services
- “may” lower BC’s marginal effective tax rate on capital in 10 years
- businesses in BC can file for refunds for the HST they pay
- businesses “may” have to lower prices to remain competitive due to the free market economy
CONS
- businesses don’t pay tax, consumers pay more tax, instead of previous 5% GST, BC taxpayers now pay 12%
- 5% HST on point-of-sale rebate items such as motorfuel, books, newspapers, some health and safety items, etc
- HST on provincial residential energy (such as costs for heat, hydro, etc)
- “may” increase rent to cover the increased costs for heat, hydro
- “may” increase costs for social housing
- increase costs for sport rentals, memberships, etc
- INCREASE DENTAL SERVICES CHARGES!
- BC may “adapt” to be as competitive as other provinces by adding VAT (value-added tax); other provinces that has done so are: Quebec, N.S., N.B., N.F., Labrador, and Ontario is planning to add as well).
However, USA has not implemented VAT
- NO HST EXPENSES REFUND for BC taxpayers
I just have a bad feeling that the HST is a prelude to increase taxation on BC taxpayers. So why am I not convinced that HST is going to benefit everyone in the long run?
Why don’t you tell the sheep the whole story.Like the 2 billion dollar tax break for business being passed on to consumers. Of course business will want to move to BC so the sheep can pay some of there operating cost. I own a business.
I own a car wash, I pay 5% GST on every dollar I make, after July 1 I will pay 12% that is a loss of 7%. My accountant says I will only be able to write off PST on supplies which is a small cost of my business. The larger costs like bank loans,taxes and utilities I can’t write any of those cost off. The bottom line is, I will have to pay an extra 7% on all of my income but, will only be able to right off that 7% on a portion of my expenses, the cost of doing business just went up!
How about the majority of the working middle class, I dont own a company, I cant write off anything. I already pay a ton in taxes from my paycheck. How is this permitted to happen. Worst of all is that I moved here from the states, I gave up my job there and now I cant go back. I’m so frustrated.
From where I stand in the bicycle business, I see the proposed HST increasing the cost of doing business. Then, what I see is my customer having to pay 7% more for a new bike, bike parts and service. In the era of the signed accords in Kyoto and Copenhagen I see this as sending a completely wrong-headed message to Canadians and the rest of the world.
If the government is convinced that big business savings on start-up costs will eventually trickle down [Reagenomics] to the average consumer, then they are indeed living on Pluto not Mars.
Then there is the issue of electoral deceit. During the May 09 election campaign he was pointedly asked about the introduction of the HST. He replied ‘not even on our radar’. What integrity.
This issue should indeed go to referendum along the party itself.
In the 1970s the amount corporate BC contributed to BC’s tax revenue was 42%. Today it is less than 15%. If the government gets away with this HST you can bet that number will continue to drop and who do you think will pick up the slack?
Then why doesn’t BC do like Alberta and eliminate the PST, then we are on equal ground with Alberta, and the end user, us, do not have to pay the additional tax.
Alberta gets a huge chunk of change from the oil they have, main reason for no PST. BC isn’t so lucky.
Tyler, do you realize the wealth BC has in terms of renewable resources (timber, clean power via hydro, tidal power generation) that Alberta does not?
The eco-lunacy has had a bigger impact on policy in the left coast, Alberta has simply chosen a more rational approach. Nothing to do with resources and all to do with politics.
Just how is this HST going to effect seniors on fixed incomes…and what about single parents? Will this effect young adults wanting to attend university? I would like some answers..
What people don’t seem to get is, that without businesses, who’s going to have a job in the first place?
Most people are under the impression that corporation’s are single entity’s, and that is completely false. Corporation’s are comprised from a small number of individuals to thousands of individuals, all of these individuals ranging from Average Joe to Joe Rich.
Without increasing numbers of corporations and businesses being attracted to BC, our economy will stagnate and the number of well-paying jobs will diminish drastically due to them being relocated to areas where the cost of doing business is cheaper.
What would you rather have? A job and higher tax, or no job at all?
Dear David Jeff and Andrew,
To say that much extra money would be spent on equipment and building if this “US client” was to have to pay the PST, I’m confused. It is my understanding that manufacturing equipment and supplies are now already PST exempt. ? (at least that is what our accoutants follow) I’m also not sure why it is not brought up that due to location, and our ports, that hundreds of thousands are saved in shipping, as with most exports the importer is responsible for costs from that point.
8 out of 10 businessess are small businesses and they will be the ones to suffer along with the poor and middleclass. I cannot help but feel that this is a move only to pay off the Olympics with the fed money offered on the deal and that that has been the plan all along. Hanson himself said that HST was not even on the radar, yet how is it that a move like this that should take months or even longer was done in a few weeks? That is if he was telling the truth.
It’s not all bad. If you are building a business or buying product for a business you will save money in the long run. What you collect in HST as a Business you pay back to the Government, but what you spend on HST you deduct from what you pay the government. With PST you could not do that now as a Business you can save another 7% on a lot of stuff.
Yea it’s hurts a little more to go buy a coffee or go out to eat but in the long run it will create more jobs and it will save small businesses money as well as large ones.
I just moved to BC from Halifax that has the HST. And if you think prices will drop your kidding yourself. Prices did not drop and they are still rising. Also jobs were not created alot of people left to find work in other provinces.
The HST should never have been brought in without consultation with the public. I hope enough people sign the anti-HST petition so that it can be put to a vote in a referendum. One of the main problems with the HST is that it was brought in under a Premier who has done a lot of bad things to our province. He promised us that the HST would not be implemented and then he went ahead and did it anyway. The majority of the people of BC are struggling to survive and now most things are going to go up in price.This was not the time to implement such a tax. I urge everyone to vote against the HST so that we can determine for ourselves if it should be implemented or not. I for one do not trust Mr. Campbell.
All this is well and good if you are a business owner, but there is absolutely no benefit to the consumer. Simply put, businesses won’t pay tax (or they get rebates and “credits”), consumers will. All this is is a shift from one taxpayer (Campbell/Hanson and their friends) to the great unwashed who are virtually powerless in this dictatorship. The so-called “trickle-down benefit” didn’t happen in the Maritimes, and it won’t happen here. No matter what the “experts” claim, there wasn’t, isn’t, and probably wont be, any net benefit to Joe-average-taxpayer.
As for electoral deceit, no government on this planet could plan, negotiate, and implement this in the time-frame claimed by Campbell and his minions. He and his bunch lied from the outset, and they are still lying. Why on earth would anyone believe anything this crowd says about “benefits” when their credibility is less than zero?
The HST is politely referred to as a VAT tax???? can’t even think of a reason for that. In fact it’s a consumption tax and indirectly a tax on labor. Wages will go down before prices will drop, that’s how we’ll become more competitive. The Film industry used in the example should not be wasting anyone’s time and energy, as the industry would not like to locate in Alberta for obvious reasons. Think positively about your province pleeeeeeeeeeze!
“corporate” is a dirty word ie: monopoly, business and gov’t partnering, market irregularities based on greed, in the interest of ??? ALMOST ANYONE EXCEPT THE CITIZENS OF THE PROVINCE / COUNTRY. The world HAD MORE VALUE when the mom’s and pop’s ran it.
M. Harrison
so stupid article, it looks like HST in BC equals to GST in Alberta.
No matter what oily-tongued swindlers like Colin Hansen say, the HST is a regressive tax grab at the expense of the least prosperous in our society.
At least it has the benefit of ending Gordon Campbell’s career as premier. He won’t dodge this one.
RECALL—RECALL—RECALL. This will be fun! I wish I lived in a Liberal Riding!
The government HST website says that all the business leaders and groups listed as supporters of HST represent 1.3 million workers. Did I miss something? Did any emmployees elect them?
Are they representing workers by opposing an increase in the minimum wage?
There may be indirect benefits to the HST that will trickle down, but the only guaranteed benficiaries will be business whio will get a very direct tax cut – again!
Come to Alberta people , we only have 5% GST and that’s it….just 5%
Recently on a trip to BC I was astounded at the price of gas easily 25-30 cents per litre higher than in Alberta.I went to look at the job bank expecting at least to see higher wages in BC to offset the higher cost of things, boy was I shocked to actually see LOWER per hour salaries than in Alberta ( I actually did this in consideration of moving to BC after such a pleasant vacation there ) As I sit in front of my computer I realize with sadness that I just would not be able to afford to live in BC. the cost of a one bedroom condo in Vancouver was in the $450000 range . In Alberta I can get a 4 bedroom/ 2 bathroom house with $$$$ to spare for the same price.
Much as I LOVE BC , if I moved there I would be a pauper in no time , this makes me sad as I love your beautiful province, but it makes me wonder if Alberta will go through another boom , just because we have NO HST and only 5% GST.
It seems that it will make it more attractive for businesses to set up here.
Thoughts on that ?
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