Enhancing Agriculture Competitiveness Through Equitable Taxation

Year: 
2016

In B.C., the primary agriculture sector's nearly 20,000 farms generated $2.9 billion in farm sales in 2014, well over $100 million above the previous year[1] and is anticipated to increase to $3.5 billion by 2018.[2] B.C. exported more than $2.0 billion worth of agricultural products to more than 144 markets in 2014,[3] an increase in value of 11% over 2013. The potential in the agriculture industry within B.C. is well recognized by industry and government alike, yet we need to take measures to continue to enhance the competitiveness of this industry, in both the domestic and international markets.

Despite high quality products, productive land, and growing local and domestic markets for agricultural products, B.C. is facing heavy competition from external markets. In particular, Alberta and the northwest United States supply a large percentage of the agricultural products sold in B.C. One of the major contributing factors to B.C.’s reduced competitiveness is the tax burden faced by the sector.

Prior to 2010, when the HST was introduced, farmers and ranchers received relatively few tax exemptions compared to competing markets. Under the HST system, agriculture saw returns of $15-20 million through GST/HST tax returns on exempt goods and services.[4] These returns and exemptions enabled the agricultural industry to produce goods at lower costs, helping them to become more competitive in local and global markets.

With the return to the PST system, B.C.'s agriculture industry longer receives exemptions or investment tax credits on the majority of goods and services used in farming and ranching. This puts B.C.'s agriculture industry at a distinct disadvantage against both Alberta and Washington State, where a large number of the goods purchased for farm use are tax exempt.[5][6]

Requiring the payment of PST on agricultural services means higher input costs without a balance of investment tax credits. These higher production costs, in turn, lower profit margins for producers and subsequently increase the sales prices of agricultural products, either of which would increase the financial burden on both producers and consumers and decrease B.C. farmers’ competitiveness.

Providing PST exemptions to farmers and ranchers would secure B.C.’s standing as a competitive agricultural producer. The decreased production costs achieved through this tax exemption would enable B.C. farmers to increase production and sell their goods at more affordable prices while still maintaining a good profit margin. This affordability will serve to strengthen both domestic and foreign market competitiveness, encourage local food purchasing, and provide a secure food supply, all of which will contribute to the growth and development of a strong, secure agriculture industry in B.C.

The 2016 Provincial Budget identified a limited number of new PST exemptions for qualified farmers, but this falls short of those needed to truly enhance the competitiveness of the sector.  The government also announced the creation of a Tax Competitiveness Commission to examine the province's tax regime.[7] It is imperative that the current impact of PST on agriculture competitiveness is a priority in any consideration of proposed changes. This should provide an opportunity to examine a more comprehensive value-added approach to achieve better income tax equitability.

THE CHAMBER RECOMMENDS:

That the Provincial Government:

  1. Provide PST exemptions on all agricultural goods and services that are zero-rated under the GST system;

  2. Ensure that the mandate of the Tax Competitiveness Commission give full consideration to the needs of the agricultural sector; and

  3. Continue its discussions with the British Columbia Agriculture Council and industry stakeholders to enhance the sectors competitiveness both domestically and internationally.

Footnotes

[1] Source: BC Ministry of Agriculture, BC Agrifood Industry Year in Review 2014.

[2] Source: BC Ministry of Agriculture, 2016/2017 - 2018/2019 Service Plan

[3] Source: BC Ministry of Agriculture, Sector Snapshot: BC Agriculture - 2014

[4] Source: Canada Revenue Agency: Farming Income including Form T2042 2012; http://www.cra-arc.gc.ca/E/pub/tg/t4003/t4003-12e.pdf

[5] Source: BC Agriculture Council; Garnet Etsell, Chair

[6] Source: Department of Revenue Washington State, Agriculture Tax Guide: Sales and Use Tax Exemptions; http://dor.wa.gov/content/DoingBusiness/BusinessTypes/Industry/Agricultu...

[7] Source: BC Provincial Budget 2016

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