British Columbia Could Cut Unpopular Sales Tax

by Mike Godfrey, Tax-News.com, Washington

31 May 2011

In a bid to boost support for the province's controversial harmonised sales tax (HST) ahead of a crucial referendum, the British Columbian Finance Ministry has announced that it intends to slash the rate by 2%, were it retained following the vote on June 24.

Introduced in July, 2010, the HST blended the 7% provincial sales tax (PST) with Canada's federal general sales tax (GST), set at 5%, resulting in an overall rate of 12%. Such was the controversy generated by a move seen to have taken place without prior electoral consent, that the then Premier Gordon Campbell resigned in November, 2010 over the issue. In response to a major petition, a referendum was called for June 24, at which voters will be asked to answer yes or no to a question on whether to "extinguish" HST and reinstate the PST/GST regime.

Were the referendum to result in the retention of the HST, Finance Minister Kevin Falcon has said it would then be subject to a two-stage reduction process, taking place over the next three years. The cuts would apply to the PST portion, with the rate dropping to 6% on July 1, 2012, and subsequently falling to 5% on July 1, 2014. Under this new 10% harmonised rate, British Columbian families could expect to pay, on average, CAD120 less in tax annually, according to Falcon.

Moreover, the deal is sweetened still further by a pledge to offset the costs of the HST in the run-up to July, 2012. Families with children under the age of 18 would receive one-time "transition cheques", worth CAD175 per child. Low and modest income seniors would also be offered them. Pending the results of the referendum, the government would begin issuing the cheques by the end of the current year, at a cost of CAD200m.

Falcon's announcement comes in the wake of a report on the future of the tax by the Independent Panel on the HST, which argued that, despite the public anger generated, it in fact represents a long-term boon for the provincial economy. By 2020, the report argued, the economy will be CAD2.5bn larger than it would have been under PST/GST, with 1.1% higher growth projected. HST would affect a CAD1.2bn boost in additional exports - 1.2% higher than under PST/GST - and generate 24,400 more jobs, resulting in a net 1% increase in employment levels. Not only this, but reverting to the previous sales tax system would cost millions in lost revenue, hit growth, hinder exports and damage the job market.

The results of the referendum, expected in August, will be binding.

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