Thursday, January 24, 2008

Saskatchewan Rejects Sales Tax Harmonization

Saskatchewan decided not to harmonize the 5% PST with the GST. The province wanted $400 million from the federal government to ease the pain on those who would be hardest hit by the tax expansion. The feds said "How about $180 million?" so the province said "No." The province estimated the cost of new houses would go up $15,000 to $20,000 through the imposition of expanded taxes, something unwelcome in a market where housing prices continue to rise dramatically.

Sales Tax Harmonization was the only part of Jack Vicq's 2005 Business Tax Review that was not adopted by the Saskatchewan government. The changes turned the tide in the Saskatchewan economy, lending credence to sales harmonization as well. While harmonization would have created efficiencies and advantages for many businesses, it also created some problems for others.

The arguments against harmonization were succinctly put in a January 12 letter by Courtney Donovan, VP for the Canadian Restaurant and Foodservices Association.

That means consumers would pay far more tax on services, such as haircuts and snow removal, as well as on products currently exempt from provincial sales tax -- including reading materials, children's clothing and other family essentials, and restaurant meals.

It's called a harmonized sales tax, or HST, and would mean a $7.5-billion shift in taxes from businesses to consumers in Saskatchewan, Ontario and British Columbia, according to the Canadian Tax Foundation.

The restaurant industry is in a uniquely unfavourable position when it comes to both the GST and potential HST because the products we sell are subject to the tax, while similar or identical products sold by grocery stores are not.

For consumers, this creates an unfair situation in which the bottle of juice they buy at a restaurant is taxed, while the same bottle at a grocery store is tax-free. Pizza from a restaurant is taxed, but a frozen pizza is tax free.

The GST itself could use some tweaking. Had this been done, tax harmonization could have been more palatable. Harmonization could have been a good move, had those facing more taxes been helped in some way. However, its rejection has restaurant owners and some consumers breathing a sigh of relief.


Dennis Prouse said...

Saskatchewan's rejection of sales tax harmonization is unfortunate. All this does is make Saskatchewan businesses less competitive. Sales taxes were always designed to be paid by consumers, yet today about 40% of provincial sales tax revenue is derived from businesses. These businesses are unable to claim back their PST expenses as input credits, as they can with the GST. This puts Canadian businesses in the non-harmonized provinces at a competitive disadvantage.

The list of PST exempt items has shrunk considerably over the years as provinces have sought to gain more revenue. By this point, the only items left unaffected by the PST are the ones you listed. Sales tax harmonization makes economic and administrative sense. In fact, it is the simplest, fastest move Canadian governments could take to lower the tax burden on businesses, and make our economy more competitive. It is unfortunate that short term political thinking is getting in the way of Ontario, Saskatchewan, BC, Manitoba and PEI from doing the right thing.

Arbalister said...
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Arbalister said...

And now we have Ontario accepting the idea of an HST, and ignoring the cost to the consumers

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