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BC Must Refocus On Competitiveness In Wake Of PST Switch

by Mike Godfrey,, Washington

04 April 2013

British Columbia's return to the provincial sales tax (PST) "represents the single biggest tax increase on business in the province’s history," and will impact heavily on competitiveness, industry representatives have warned.

A Harmonized Sales Tax (HST) system was introduced in the Canadian province in 2010. It blended the 7% PST and the 5% federal Goods and Services Tax (GST) to create an overall HST rate of 12%. However, taxpayers voted to restore the PST/GST regime in a 2011 referendum, and it was duly reinstated on April 1. The Government will have to repay a CAD1.6bn (USD1.58bn) transition payment provided by the federal administration when the HST was first implemented.

The Ministry of Finance estimates that 40% of PST revenue will be paid directly by British Columbian companies, a figure that alarms the Business Council of British Columbia. According to the Council, this will make goods and services more expensive because it will "layer costs onto all types of BC-based production activity." For instance, businesses were able to obtain offsetting tax credits for all sales tax paid on their "inputs" under the HST, but this relief has not been carried over into the new PST regime.

According to Jock Finlayson, the organization's Executive Vice President and Chief Policy Officer, production and operating costs for British Columbian businesses as a whole could increase by as much as CAD1.5bn a year. Compliance and administrative costs to the tune of CAD150m are also expected. The manufacturing, forestry, mining, energy, telecommunications, transportation, film production, along with parts of the high technology sector, are among those expected to be hardest hit.

The Council's President Greg D'Avignon maintains that with the PST likely to make the province "less competitive in terms of business taxation," the Government must ensure that the "broader policy and regulatory environment supports business investment and job growth." He wants a "fresh look at major areas of regulatory policy, including approval processes for new projects, and the impact of municipal governments on business activity and economic growth." Similarly, Finlayson thinks that the "other taxes, fees, levies and policies that influence the cost of investing and doing business" should be taken into consideration, "with a particular focus on how government-imposed costs affect the position of export-oriented industries and local companies that compete with imported goods in the domestic market."

"BC is a small trade-dependent economy, and many of our leading industry sectors operate in a highly dynamic global marketplace. As we re-enter the PST era, the Business Council will have a renewed focus on how the province can re-build its competitiveness," D'Avignon stressed.

The picture is not all gloomy, however. The Canadian Restaurant and Foodservices Association (CRFA) has welcomed what it calls a "return provincial food tax fairness." According to the CRFA, the HST cost the foodservice industry CAD1.5bn in lost sales, with sales growing at just 1.4% during the HST period. In marked contrast, the CRFA forecasts 5.1% industry growth this year alone. It is launching an advertising campaign which aims at reminding restaurant goers that they will now pay less for their meals.

TAGS: Finance | tax | business | sales tax | tax incentives | mining | energy | goods and services tax (GST) | fees | tax credits | food | manufacturing | Canada | tax reform | trade | services | Compliance

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