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Harmonised Sales Tax in Canada: The Winners & Losers
The provinces of Canada continue to integrate their provincial sales tax regimes with the federal Goods and Services Tax (GST). Most recently, British Columbia and Ontario announced plans to move to a single value-added tax (VAT) regime, with rates of 12 per cent in British Columbia and 13 per cent in Ontario. The move to HST by Canadian provinces reflects a worldwide trend in consumption tax - Michael Bussman from Gowlings, our Canadian member, discusses this move in detail.
With effect from July 1, 2010, B.C. and Ontario will join the Atlantic provinces of New Brunswick, Nova Scotia, and Newfoundland and Labrador, all of which have levied the Harmonized Sales Tax (HST) since 1997; and Qu?bec, which introduced its own valueadded tax in 1991 in the form of the Qu?bec Sales Tax.
VAT systems such as the HST and GST are now the world's most common method of taxing consumption, with 29 of the 30 member countries of the Organisation for Economic Co-operation and Development using a VAT/GST system, and some 130 countries worldwide having adopted this method of taxation.
The change from a provincial sales (or consumption and use) tax to a multi-stage value-added tax in the form of the HST should benefit many businesses, streamlining compliance by replacing two sets of transaction tax rules with a single, comprehensive regime. A single set of rules will save millions of dollars in compliance costs for business and in administration costs for the governments of British Columbia and Ontario.
Most businesses that currently make GST-taxable goods or services, or that supply them on a GST zero-rated basis for export, should be entitled to fully recover the higher HST they will pay on inputs into their businesses. These businesses will no longer pay unrecoverable provincial sales taxes on purchases of goods and certain services, and will not embed them in the costs of the goods and services they produce. A significant winner will be the computer software and services industry as its sales will no longer be subject to unrecoverable provincial sales tax. This tax relief should provide some much-needed stimulus for this sector.
Increasingly, provinces that continue to maintain sales tax regimes--Manitoba, Saskatchewan and Prince Edward Island-- are encouraged by the federal government to undergo the same transition and it is likely these hold-outs will follow suit in the coming years.
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