HARMONIZATION OF PROVINCIAL SOCIAL SERVICES TAX WITH FEDERAL GOODS AND SERVICES TAX (2002)

 

The federal government levies the Goods and Services Tax (GST) on most property and services supplied in Canada.  The province of BC levies the Social Service Tax (SST) on most goods and services supplied in BC.  Most businesses operating in BC are required to collect, record, report and remit GST and SST on taxable sales of goods and services.  Each government has its own audit processes, with the related necessity to maintain and store records.

 

These imposition of two levels of tax creates significant and unnecessary costs for businesses in BC in two respects.  First, many business inputs are subject to SST that, unlike the GST, cannot be recovered and thus represent a direct cost to business.  While the recent SST exemption for manufacturing equipment has improved the situation, businesses in BC are still at a competitive disadvantage compared to jurisdictions that do not impose such taxes.  Second, the requirement to act as a tax collector for two levels of tax imposes significant direct and indirect costs on businesses in having to administer the taxes.  Each of the GST and SST has its own set of taxable items and each has a myriad of exceptions.  Business operators must spend both time and money to understand the application of two taxes to their operations, establish systems to account for taxes and deal with two sets of auditors enforcing compliance.

 

These are costs that, unlike the taxes themselves, add nothing to government revenues.  Furthermore, unlike some costs that may be incurred to promote business expansion, these costs create the opposite effect.  It is recognized that the nature and structure of the GST (a value-added tax) and the PST (a cascading tax with exemptions for certain business inputs) are quite different and that each tax has its own set of exemptions.  However, all that stands in the way of harmonizing those taxes is the political will to make it happen.

 

The federal government has indicated willingness and a desire to enter into agreements with the provinces to harmonize the GST with provincial sales taxes.  In fact, agreements have been reached in Nova Scotia, Newfoundland and Labrador and New Brunswick to create a harmonized tax, the Harmonized Sales Tax (HST).  The Quebec Sales Tax, though not harmonized with the GST, is almost identical to the GST in its application and thereby reduces compliance burdens and eliminates tax on business inputs.  To date, the provincial government in BC, more for political than economic or revenue generation reasons, has rejected the federal initiatives towards harmonization.

 

If agreement were reached between the federal and BC governments businesses would generally be relieved of tax on their business inputs and would have to administer only a single sales tax, thus both reducing their compliance costs and increasing the competitiveness of BC business.  The result would be cost savings for businesses without any revenue loss to government (depending upon the harmonized tax rate and sharing agreements).

 

Since at least 1989, The Chamber has been on record as supporting, in concept, a national value-added tax, provided that it satisfied at least the following principles (the “HST Principles”):

 

·         Unlike the present structure under the GST, an HST must be a comprehensive, all encompassing, across the board tax, excluding those items which are currently tax exempt.

·         The process of collection of the HST imposed on businesses, particularly small businesses, must be as simplified as possible in order to mitigate against the disproportionate cost of collection imposed in businesses and the leakage of input credits that occur on small ticket items not fully receipted.

·         The SST must be harmonized with the GST.

·         As with the current GST, an HST must be visible to the consumer (i.e. added on at the cash register), because only then can government be held accountable for any increases in the rate.

·         As with the current GST, there should be tax credits for low income taxpayers to lessen the impact on them of a broadened tax base.

·         Any changes to the rate of HST charged must only be possible after Parliamentary debate.

·         The process of harmonization of the GST and SST must not be used as a means to the collection of higher taxes.  In other words, the HST must be revenue neutral to governments.

 

THE CHAMBER RECOMMENDS

 

That the provincial government:

 

1.       recognize the unnecessary negative impact on businesses and the BC economy of dual sales tax collection and therefore commit itself to moving quickly to reaching agreement with the federal government for the full harmonization of the SST and the GST, including the harmonization of the collection, reporting and remission of the GST and SST and the related audits;

 

2.       commit itself to the HST Principles set out above in coming to agreement on a HST with the federal government; and

 

3.       if it is unable to reach agreement with the federal government on the HST, at least streamline the collection of the SST on the basis of a single collection and audit and enforcement process with that under the GST and a closer matching of the taxable item bases of the GST and SST.