After spending two years transitioning to a new sales tax system, the residents of British Columbia are finally ready to embrace their Harmonized Sales Tax. Just kidding, they axed it.
British Columbia’s Harmonized Sales Tax (HST) has been in effect for just over a year. The tax, which combined the country’s 7 percent Provincial Sales Tax with Canada’s 5 percent Goods and Services Tax, has been widely unpopular since it was first announced more than two years ago.
That unpopularity shined through last month when, in a province-wide referendum, nearly 55 percent of voters chose to repeal the HST.
B.C.’s HST rate is 12 percent, which is the same effective tax rate as the previously separate PST and GST. However, some key changes between the HST and the previous tax system earned the HST its fair share of opponents.
Critics argue that the tax takes much of the burden away from businesses and places it on residents. A chief complaint is that, as a value-added tax, businesses can reclaim HST paid during commercial activities by deducting the tax paid on supplies from the amount remitted to the government.
Meanwhile, as the ultimate payer of a value added tax, consumers cannot reclaim HST. In addition, many items that were previously exempt from PST are no longer exempt under HST. As a result, many B.C. residents believe the HST to be a tax increase for residents and a tax decrease for businesses.
Regardless of the motivations behind it, the repeal is in place and is not going to be cheap. B.C. Finance Commissioner Kevin Falcon said that the province will have to repay the $1.6 billion in federal funding it received to transition to HST. This of course does not include the money businesses spent implementing a new tax collection and remittance system that now has to be undone.
Reactions to the repeal varied. According to an article published by BC News, the business community has met the vote with disappointment. Peter Leitch, Chair of the Motion Picture Production Industry Association of British Columbia, called the vote “a disappointing outcome.”
“The public have spoken and rejected the HST, a tax change we strongly endorsed,” said Greg D’Avignon, President and CEO of the Business Council of BC.
Contrary to these opinions, Jim Sinclair, president of the B.C. Federation of Labor, applauded the vote as “a victory for common sense and working families,” adding that the HST increased the tax burden on B.C. residents by $2 billion.
Despite the vote, HST will remain in effect for some time. Falcon says that it will take at least 18 months to transition from HST back to the separate PST and GST systems. Companies doing business in Canada must begin working to restore the tax processes that they ditched 14 months ago. Aren’t politics fun?!