Monday, December 7, 2009

Harmonized Sales Tax (HST) - To Be Passed This Week?

It seems the McGuinty government is forging straight ahead with the HST implementation, despite an apparent non-approval rating from most of the citizens of Ontario. Polls are showing as high as 80% are opposed to the new combined tax structure. However, in typical Canadian fashion, there doesn't seem to be any noticeable public protests toward this opposition, save for some online activity. If this tax is as evil as believed, and will affect pretty much everyone, then perhaps it's time to get off our collective desk chairs and make ourselves visible to our councillors and other members of parliament. If we choose to sit back and do nothing, then we all suffer the consequences, much alike those who don't vote but love to complain about government.

Here's a bit more about what HST is all about. It basically will merge the current GST and PST taxes into one lump sum to be added to most existing items already subjected to these taxes, as well as others currently subjected to only one or other other. It is set to take effect on July 1st, 2010. Ironically, Canada Day...or not!

Backgrounder (Small business and the HST)
• Many small businesses will have to add a new sales tax to a laundry list of goods and services: magazines, vitamins, veterinary care, dry cleaning, home renovation, hair cuts, and massage therapy.
• Given that many small businesses do not pay sales taxes on their inputs, they won’t be able to pass on any savings to consumers. Local small businesses worry that higher prices will force customers to look to big box stores.

Affected Items
- GST was previously applied on Gasoline and diesel which will no longer be taxed under the Harmonized Sales Tax.
- Homes below $400,000 would receive a rebate compensating for the HST, and -- unlike the GST -- the rebate would not be recaptured.
- Items from haircuts to carpet cleaning that today include only the five per cent GST will see an increase in costs. However, the PST portion of the HST will be exempt on newspapers and fast food items not exceeding $4 per purchase.
- Exceptions include household goods as children's clothing and shoes, car seats, diapers and feminine hygiene products HST exempt

Consumers are most likely to notice an increase in the price of gasoline and heating fuels. Electricity will no longer be exempt from provincial sales tax, nor will tobacco, personal services like haircuts, membership fees for clubs and gyms, newspapers and magazines, taxi fares and the professional services of lawyers, architects and accountants. Real estate commissions will also be taxed.

What the government wants us to believe:

The province says implementation of the single sales tax would bring Ontario into line with "what is viewed as the most efficient form of sales taxation around the world." The finance ministry says the single sales tax would reduce the cost of goods that Ontario exports, making the province more competitive and boosting a sector of the economy that has been particularly hard hit by the economic downturn.

At the moment, businesses may not deduct the PST from the cost of materials and other products they buy; instead, they pass the cost along to consumers. But under harmonization, businesses may claim tax credits for those purchases, which some estimates suggest could save them $3-billion a year.

The Ontario Chamber of Commerce believes a fully blended system would cost consumers approximately $905 million in additional sales taxes per year, while the GST and PST bill for companies would fall by $1.6 billion annually.

The Canadian Federation of Independent Businesses says harmonization will save business $100 million a year in reduced red tape.

Businesses will save a further $500-million a year on the costs of administering a single tax instead of two, according to the budget documents.

British Columbia is also set to implement the same HST law simultaneously, and other provinces have done similar in the past. It seems that it isn't just the public being laxidasical about the changes being implemented without public consideration, but parliament seems to not care less either.

Recent article posted Dec 3, 2009.

The HST is closer to becoming law in British Columbia and Ontario after the House of Commons voted in favour of the controversial new collection regime Thursday.

The Conservative government's motion was backed by the Liberals and Bloc Quebecois, setting the stage for the formal amendment of the Excise Tax Act.

The government is moving to fast-track the legislation, so it could be voted into law as early as next week.

Only New Democrats voted against the ways-and-means motion, which passed 192-32.

But the fact that only 224 MPs were present to cast a vote in the 308-seat House spoke volumes about how gun-shy even supportive parties' members are of the harmonized sales tax.

Thirty-five Conservatives, including 10 members of cabinet and the travelling prime minister, missed the vote. The Liberals were short 28 MPs, although Leader Michael Ignatieff made a virtue of the fact no Liberal actually voted against tax harmonization despite several threats this week.

"The Liberals are certainly speaking with one voice on the HST," said Ignatieff.

"We made a tough decision because we believe that provinces, both British Columbia and Ontario, want this legislation. They believe that it will create jobs and employment in those two provinces."

The change, negotiated between the Harper government and provincial Liberal governments in B.C. and Ontario, will permit the provinces to start collecting a combined GST and PST next July 1.

Consumer groups in both provinces have railed against the change, since it will expand the range of goods and services subject to provincial sales tax.

But the provinces, helped by billion-dollar packages pledged by Ottawa, say they will be rebating consumers for the hit they take on newly taxed items such as heating fuel and baby clothes.

The Harper government, like the federal Liberal government that preceded it, has been pushing for the harmonized tax since at least at least 2008. The Conservative budget that year said "tax harmonization is the single most important step provinces with (sales taxes) could take to improve the competitiveness of Canadian business."

The federal government provided Ontario with $4.3 billion to induce it to harmonize, while B.C. negotiated a $1.6-billion payment from Ottawa that will help provincial consumers over the tax transition.

Quebec has already effectively gone to a single sales tax, and Nova Scotia, New Brunswick and Newfoundland and Labrador all use a harmonized sales tax.

We all still have time for a say on this, but act fast as it maybe a lost opportunity by the end of this week.

1 comment:

HST Facts said...

Claims that the HST is a tax grab are simply not true. No one believes that Ontario will emerge from this recession the same as it went in. We need to become more competitive.

A report by TD Bank estimates the HST will reduce cost of doing business in Ontario by roughly $5.3 billion and that the majority of these savings will be passed on to customers within the first year. In fact, the majority of items you purchase - 80 percent – will see no tax change at all.

A recent report by economist Jack Mintz confirms that Ontario needs to reform its tax system to create jobs and put Ontario back on its feet. It says, as a result of the HST, within 10 years Ontario would see:
o An estimated 591,000 additional new jobs
o Increased capital investment of $47 billion
o Increased overall annual worker incomes of up to 8.8 per cent, or $29.4billion

We have a choice: we can refuse to fix what’s broken, resign ourselves to the idea that Ontario will be less competitive or we can move forward and get the jobs Ontario needs.

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