adoption of the harmonized sales tax (HST) means that BC loses
much of its discretion to set tax policy, but the Memorandum
of Agreement between Canada and BC states the final agreement
confirm British Columbia's flexibility, subject to reasonable
notice provisions to designate a reasonable number of BCVAT
point-of-sale rebates, not exceeding 5%, in aggregate, of
the estimated GST base for British Columbia subject to data
availability and definitions used in the Canadian System
of National Accounts or other mutually agreed upon data
sources, definitions and methodologies. For greater certainty,
and subject to the foregoing, point-of-sale rebates that
Canada agrees to administer for British Columbia will include
motive fuels, children's clothing and footwear, children's
car seats, feminine hygiene products and books."
makes the definition of the words "GST base" very
important; it is not included in definitions used in the National
Accounts. Since the GST is a tax, we can look up definitions
of the words "tax base". While those words are not
in the National Accounts glossary,
you can simply use any Internet search engine on the words
"tax base definition". There you will find tax
base defined as "the wealth within a jurisdiction
(as in real estate or income) that is liable to taxation."
GST base is $155 billion then there is more room to create
an exemption for the restaurant industry than if it is $100
billion. I asked the people in the Ministry of Finance who
are handling enquires regarding the HST, what are the PST
and HST tax bases? I received the following answer:
HST base is the expenditures which attract tax after accounting
for exemptions, zero-rating (e.g. basic groceries) and input
tax credits but before accounting for the major rebates
(including point of sale, rebates to public sector bodies
and housing). For BC in 2007, this amounts to about $93
BC. Given that the PST system does not have a similar rebate
system, we would probably say that the PST base in 2007
was $5B / 7% = $71 million (it would be slightly less than
this due to the fact that PST revenue includes the 10% liquor
tax rate although this would be a small negative adjustment
to the $71 billion). GST revenue before input tax credits
cannot be used as a measure of the base because the tax
does not stick to businesses that can claim input tax credits."
is inconsistent in that it defines the PST base differently
than it defines the GST base. Just as the PST base is defined
by dividing PST revenue by the PST tax rate, so also the GST
base is defined by dividing its revenue by its rate, not by
first adjusting the tax revenue by subtracting input tax credits.
That accounts for the difference between a GST tax base of
$155 billion and what the Ministry maintains is the much smaller
base of just $93 billion (its note mixed millions and billions,
but the context is clear).
the GST base unnecessarily limits BC's flexibility as described
in the Memorandum of Agreement, but it is politically convenient
to make it appear that the HST doesn't really more than double
the value of goods and services captured by the tax relative
to the PST.
have to be a tax wizard to see how all encompassing the HST
will be. Pay careful attention to all your bills and receipts.
Whenever you see just one line for tax, a 5% GST, keep in
mind that effective July 1, 2010, that line will change to
a 12% HST. That applies to everything from your cup of coffee
to the purchase of a newly constructed house.
harmonized sales tax (HST) will apply to more than twice
as many things (by value) than are taxed by the provincial
sales tax (PST). That is why some people are calling it a
massive tax grab even if input tax credits and low income
refunds render it revenue neutral for the government.
raised $4.96 billion for the province. Dividing by 7%
gives the PST tax base of $70.8 billion. The most recent GST
statistics by province are for fiscal year 2003-2004 when
the GST rate was also 7%. In that year $10.87 billion was
collected in BC (before input credits), so the BC GST tax
base was $155 billion, 120% more than the PST base. A usually
reliable source reported that according to the Ministry of
Finance, the HST tax base is only $100 billion. Resolving
the difference between the easy calculation and the Ministry's
claim is important in determining the credibility of a government
that promised the deficit wouldn't exceed $495 million and
that it wouldn't sell BC Rail.
Restaurant and Foodservices Association is planning a protest
with town-hall meetings and an online petition. As supporters
of the Campbell government who have donated substantially
to the BC Liberals, their protest might be viewed as a beating
with a wet noodle. Even in his initial note of alarm, Restaurant
Association President Ian Tostenson spoke of the Association's
"great working relationship with the Premier", despite
evidence that Campbell will show the restaurant industry no
mercy. One of the big differences between the harmonization
of the GST and PST in BC and Ontario is that in Ontario restaurant
meals are already subject to an 8% sales tax. Campbell may
feel justified in making British Columbians who eat out suffer
just like Ontarians. It would be a useful research project
to compare the industry's recent use and growth in each province
to see what effect different tax regimes have had. It will
be a test of the political power of the industry to see if
it moves its online petition to the front counter of every
restaurant in the province. That is what it would take to
get noticed, but it is doubtful whether the Restaurant Association
has the political will to thump the nose of the Campbell government
difference between the July 1, 2010 introduction of the HST
in BC and Ontario is the taxation of gasoline and diesel.
A 15% HST will be applied in Ontario to both fuels while BC
will apply a point-of-sale rebate so as to refund the provincial
portion of the tax. The Ontario
NDP is organizing a tax revolt based on the new tax but
BC has had a debate over its "gas tax", which some
think Campbell won. Ontarians will end up paying about the
same as BC's carbon tax (7.24 cents per litre in BC by 2012
vs. just under 7.2 cents per litre in Ontario effective 2010
if gas in Ontario averages 90 cents/litre). In other words,
Campbell's exemption of fossil fuels under the HST is just
a way of maintaining his carbon tax. If he merged the two,
there would be room to exclude restaurant meals from the HST
rather than wasting the exemption on gasoline and diesel fuel.
(There is a limit of 5% of the tax base that can be used for
exemptions.) No one ever said that Campbell isn't stubborn;
in this case to the detriment of a major industry and its
is much more than the combination of the old GST and PST.
It replaces the PST with a tax that is conceptually different,
a value added tax that results in exports not being taxed.
The effect of effectively exempting exports, as well as applying
input credits to all purchases of machinery and equipment,
while maintaining the same net provincial revenue, is to shift
the tax burden to consumers, particularly to consumers of
goods and services not previously subject to the PST.
of Agreement between Canada and BC reveals some details
of the change in taxation but there are more questions than
answers. For example, companies with more than $10 million
in revenues will not be allowed to claim input tax credits
until five years after the HST goes into effect, and even
then their ability to claim will be phased in over five years.
How many such companies exist in BC and what will their input
credits represent as a percentage of the tax base? The Ministry
of Finance should be able to answer that question since it
goes to the heart of some of the economic consequences of
the tax shift.
some small charities (those with less than $250,000 in revenue)
are exempt from GST, but subject to PST, e.g. hospital gift
shops or art councils. Will they be excused from the HST even
though they are now registered for the PST? The Memorandum
of Agreement suggests that they may end up paying the provincial
portion of the HST even though they never had to register
can think of dozens of other questions, all of which must
be answered if the HST is going to be implemented without
causing even more disruption than what is apparent from a
massive tax shift.