This is likely to be the last feature I ever write about HST. Its primary aim is to give people as much information as possible before making a decision on the referendum.
What I hope comes out of reading this is that I never got a clear idea as to what it will mean to go back to PST/GST. Specifically, I was never able to figure out precisely how much it will cost, how the government will afford it and how it will impact the taxpayer.
Note: this feature has been modified from its original version. The author mistaken wrote that HST would drop to 11 per cent in 2013. It does, in fact, drop to 11 per cent in 2012.
By Jesse Ferreras
You have an important choice to make by July 22.
By that date, the Province of British Columbia will ask you, the consumer, how it should go about taxing the money you spend.
Referendums, which put the decision directly in the hands of the people, don’t come that often. This is a chance for you to decide the future of tax in this province.
The mail-in ballot, which are now in the mail to corridor residents, will pose the question: “Yes/No: Are you in favour of extinguishing the HST (Harmonized Sales Tax) and reinstating the PST (Provincial Sales Tax) in conjunction with the GST (Goods and Services Tax)?”
A “yes” result will mean that the current 12 per cent HST on goods and services will be replaced by a PST/GST system, which applies a 12 per cent tax on most products and only a five per cent tax to others. It is uncertain how this new tax will be administered.
A “no” result will mean you support the HST, which came into effect last summer, and nothing will change as far as taxing the consumer.
The choice is yours… but do you really know what’s being asked of you?
A “Yes” result means that we go back to the PST system, which could be more accurately called “GST/sometimes PST.”
Under the PST system, the price of a winter lift ticket in Whistler would have been $99.75 including taxes. Under HST it’s $106.40. Under PST the price of a Zog’s dog was $4.62. Under HST it’s $5. With PST in place, a Ziptrek Eagle Tour adult ticket would cost $135.45. With HST it costs $144.48.
All of those services were PST exempt, and, as such, only the five per cent GST applied, effectively making them cheaper for people to buy.
The PST system set out a cavalcade of exemptions. It would exclude anything that wasn’t “tangible personal property,” or what you could see, weigh, measure or touch, and that wasn’t specifically exempted in the Act.
Other exemptions included restaurant meals; soda pop; chips; bicycles; smoke alarms; gym passes; MP3 downloads.
In a place like Whistler, where so much of the economy depends on tourism, a tax that applies to non-tangible property created understandable concern.
Shortly before the HST was implemented in July 2010, Whistler Blackcomb CEO Dave Brownlie told Pique in an email that HST is “simply bad for tourism” because, for his company, it will apply to items such as lift tickets and meals. When asked to comment for this feature he deferred to Tourism Whistler.
Tourism Whistler CEO Barrett Fisher says that her organization does not have an official position on the Harmonized Sales Tax, but she admitted that there are certain sectors connected to tourism that have been hit hard by the tax.
“I think from a tourism industry perspective and looking to Whistler specifically, there are certainly sectors that have been harder hit by the HST, such as food and beverage and activities such as ski and golf,” she says. “However, further to the meetings we’ve had with (the ministries of) tourism and finance, we have been working hard on ensuring there are some strategic mitigating allowances.”
But even beyond the tourism-related items, many other things were PST exempt.
And the new HST tax has been a problem for Carol Milan, owner and hairdresser at the Parlour Hair Saloon in Whistler Village. She said that any price increase has an impact on people coming into her business and the implementation of HST is no exception.
“I had two people, a lady and a gentleman, walk out of here the other day,” she says. “I said a haircut’s $25 plus HST. As soon as you say $28, they think the haircut is $28.
“I think it’s lowered my worth because people look at me and say, you’re charging $28 for a haircut? Who are you?
“It’s kind of a subliminal thing. If someone walks in the door and I say $28, they walk out. If I say $25, they walk in.”
Amanda Lutner of Pemberton also feels she’s caught the butt end of HST. The owner of Finishing Touch Cleaning and VIP Services, a dry cleaning company she runs out of her home, she has to charge HST on services to which she never had to charge the seven per cent PST before.
Clients, she says, have been loyal to her, but she estimates she’s lost three or four since HST was implemented last summer.
“Cleaning essentially is a luxury item for people,” Lutner says. “Originally I would charge GST and didn’t have to charge PST, so now I’m having to charge the 12 per cent and of course, in a recession, you can’t really start raising your rates to start compensating.
“The bottom line is, once you have staff, you pay Worker’s Comp, and every little percentage adds up.”
Bill Tieleman knows the impacts of HST as well as anyone.
A communications consultant and lieutenant of the Fight HST campaign, which seeks to repeal the HST and bring back the PST, he runs a business in which he didn’t used to have to charge his customers PST.
For him, and for British Columbia, he believes GST and sometimes PST is a better tax system.
“The PST and GST did not tax hundreds of goods and particularly services,” he says. “That includes meals, parking, taxis, dry cleaning, vitamins, massage therapy, home repairs, renovations and maintenance.
“Architects, realtors, financial service consultants, all those people are charging an extra seven per cent that we didn’t before.”
The HST, Tieleman says, is a $2 billion tax shift from businesses to consumers because it means that businesses can recover the tax they owe on their own expenses by collecting HST from customers.
The ability of a businessman to pay himself back HST has given fuel to the argument that prices will come down because business owners no longer have to factor PST into their operational costs.
But for Tieleman, the HST is essentially a subsidy for businesses.
“There’s hundreds of goods and services that are not subject to the additional seven per cent tax,” he says. “That’s good for consumers, and the HST is a tax shift of about $2 billion per year, from businesses to consumers, so we are paying taxes that businesses used to pay and charged to their customers.
“Most of these large businesses are not in this province, so basically consumers are subsidizing the expenses or the cost of big businesses reducing their prices.”
Seth Klein, director of the B.C. office of the Canadian Centre for Policy Alternatives, a research institute concerned with social, economic and environmental justice, believes there are economic benefits associated with the HST but he’s voting against it because, while he says wealthy people will pay more in dollars, low-income people will be paying more as a share of their income.
He wishes that British Columbia had struck a “Fair Tax Commission” to discuss at length a new way to tax people rather than just announce they were implementing a new system.
“What would it look like if we could go back to the drawing board and say, A, how much money do we need to raise, and B, how do we want to raise that money in a fair and equitable and efficient manner?” he asks.
“It may be that (HST) would figure into that, but people would need to know that it was in the context of an overall regime, an overall taxation system that was fair. ”
While a “Yes” result means reinstating a tax that was eliminated last summer, “No” will yield a much simpler result.
If more than 50 per cent of voters say “No,” nothing changes. The 12 per cent HST will continue to be levied on most products and services and not a thing will change at the governing level.
Additionally, the HST rate will drop to 11 per cent in 2012, then to 10 per cent by 2014, making it so that you pay even less tax on certain products than you would if PST were reinstated.
British Columbians will also continue to receive an HST credit of $230 per year for families with a combined $25,000 in income and individuals with up to $20,000 in income.
The HST has a big supporter in Sue Adams, owner of the Grocery Store in Whistler Village. The HST doesn’t have much impact on her business, given that groceries are exempt from HST anyway, but she says the new system has nevertheless cut down on the amount of reporting that she has to do for tax purposes.
“I think it’s a simple tax, and everything I’ve read, it seems that it’s a better way for us to fund the programs and stuff that we need through government,” she says.
The HST may not have affected the price of milk in Adams’ store but it has affected the price of other items in Whistler. But even with that potential negative impact on customers, there is still support for the HST.
Wayne Katz, co-president of the Restaurant Association of Whistler and owner of food outlets such as Zog’s, Moguls and Gone Bakery, has had to charge his customers an extra seven per cent on his offerings with the shift to HST. He says association members are “50/50” on supporting HST or GST/PST.
“Some feel it’s all right, that it’s necessary, and others feel the burden by it and are not pleased,” Katz says of HST. “It’s an additional cost to their customers and therefore it’s hurt their businesses.”
Katz himself seems ambivalent about the tax. When first introduced he was fine with it, as he finds it easy to process and requires dealing only with one level of government, but he has since discovered that HST does not allow him to claim all his expenses for tax recovery.
“How do I feel about it? I feel that there is an extra cost,” he says. “As a businessperson, another cost to have to incur is hard on me, but that said, it is easier to process and I understand the fact that we need to have a value-added tax.”
Asked what impact the HST has had on his business, Katz says it’s difficult to tell given that there are other economic factors driving business away such as a drop in destination visits and the imposition of pay parking in the Day Skier Lots.
“It’s hard for me to know if it’s the HST,” he says. “I think it’s a culmination of many things that may have slowed us down. I don’t think it’s the HST, I think it’s a combination of many.”
At its meeting on June 14, 2011, the Board of Directors of the Whistler Chamber of Commerce (WCC) endorsed HST as the best tax system for B.C.
Acknowledging that certain sectors, including the tourism sector, face unique challenges because of HST, the WCC said it would continue to lobby the government via the B.C. Chamber of Commerce to mitigate those challenges.
David Udow, the owner of Ziptrek, also a business that didn’t have to apply PST before, said any time a price increase is implemented, it’s preferable not to have to do that from the customer’s perspective.
That being said, he doesn’t feel that the price increase due to HST has had any adverse effect on his business.
“Bad weather has more of an impact on my business than the HST,” Udow says. “Give me a sunny week in August or a rainy week in August, and it’ll have way more of an impact on my business than the HST.”
For David Robertson, a tax lawyer with Couzin Taylor LLP, it is essential that British Columbians vote “No” in the HST referendum if they wish to ensure a strong economy.
“PST taxes you when you buy stuff to try and earn a living, HST doesn’t,” he says. “Let me put it in real simple terms: you can tax people when investing to try and earn a living, you can tax people when they’ve earned an income, or you can tax people after they’ve earned their money and they go to spend their money.
“The problem with PST is it taxes you also at the first instance.”
The biggest difference between PST and HST, aside from the fact the latter exempts very few items except groceries, prescription drugs and certain childcare and educational services, is that the latter doesn’t become an expense for business owners, whereas PST does.
A businessman, for example, can recover HST from customers and that means he doesn’t have to factor the tax into his prices.
With PST, he does.
There is some evidence that bears out this theory. A report commissioned in 2007 by the C.D. Howe Institute showed that in the year after Atlantic provinces implemented their own harmonized taxes, the Consumer Price Index, a measure of consumer prices experienced by Canadians, actually went down.
Paul Vacirca, one of the owners of the Rona store in Pemberton and a past-president of the community’s chamber of commerce, prefers HST to PST, adding that once HST is lowered to 10 per cent in 2014, he’ll be able to “pass that savings on to customers.”
“I think from a back end, in terms of smooth operations and day to day, collecting the HST and remitting it, it’s much easier,” he says. “The transition was literally, instead of doing things twice, you were doing it once. From upgrading our software package, it was a quick switch, and there wasn’t any issue at all.”
Cost to Change
One of the concerns in voting down the HST and going back to PST is the cost of reinstating a government department to administer it… as well as paying back a major incentive it got from the federal government to adopt the harmonized tax.
When B.C. took on HST it got $1.6 billion in funding from the feds – a substantial amount of taxpayer money that the province would likely have to repay if it went back to PST.
Premier Christy Clark has said that she would try to “minimize” the amount of money that would have to be repaid, but Robertson thinks it unlikely that B.C. would repay anything less than the full amount.
“For everyone saying we’ll negotiate with the feds, in the last budget, the government set aside $2.2 billion to Quebec for them to complete their harmonization with the federal government,” he says. “And if you’re the federal government, let me get this straight, I’m not going to ask for my $1.6 billion back?
“Not a chance. The feds are going to demand every penny gets paid back.”
On top of the possibility of handing $1.6 billion back to Ottawa, the province will also have to re-hire approximately 300 PST auditors for a department that has, in the past, cost taxpayers as much as $35 million per year. That’s not counting the $15 million to $20 million in one-time costs just to start up the department again.
These numbers add up to a cost of $1.655 billion, but the province estimates the full cost of going back to PST at around $3 billion.
How will we pay for it? The government is not saying. An inquiry to B.C.’s ministry of finance asking whether income taxes could be raised yielded the following reply: “No decision will be made on the PST + GST system until after British Columbians vote in the HST referendum.”
Robertson believes that the province could start looking for new items to tax – like restaurant meals or movie tickets, which are already taxed in Ontario.
Tieleman, meanwhile, says the $1.6 billion, at least, could be paid over a five-year cycle.
British Columbians have until July 22 to vote in the referendum by mail-in ballot.
To vote you must be a registered elector with Elections BC. Voters in Whistler, Squamish and Pemberton should have received their ballots this week. Once you’ve voted, the ballot must be back with Elections BC by July 22. In the event of an ongoing postal strike, voters can deliver their ballot packages to any Service BC Centre throughout the province. There is a Service BC location in Squamish at 1360 Pemberton Street. Office hours are Monday to Friday, 8:30 a.m. to 4:30 p.m.
What’s at stake with these ballots is the manner and the means by which the province will collect money from you, the consumer – and unlike many taxes, the choice of how they do it is entirely up to you.
If you vote “No,” nothing changes. If you vote “Yes,” things go back to a PST/GST system.
Either way, it’s a rare opportunity for British Columbians to decide how far the government can reach into their pockets.
How PST works
The Provincial Sales Tax (PST) is an example of a Retail Sales Tax (RST), which is simply a tax on consumption. You buy something, you pay a tax on it.
A “Yes” vote in the referendum is a vote for a combined 12 per cent GST/PST except when a product is exempt from the latter tax. When you don’t pay PST, you’ll still be paying the five per cent GST.
Example: a businessman owns a hardware store. He needs a new light fixture so he goes and buys one at a cost of $100.
Under the GST/PST system, because lighting is a piece of tangible property, he has to pay $5 in GST and $7 in PST on it – a total of $12 on top of his purchase.
To stay in business, he has to adjust how much he sells his products for in order to be able to afford the items he buys to enhance his business, as well as the PST on top of them.
The provincial government collects PST and the federal government collects GST.
How HST works
The Harmonized Sales Tax (HST) takes the rates of the GST (five per cent) and the PST (seven per cent) and combines them into a single rate (12 per cent) that’s administered by the federal government.
It is a Value-Added Tax (VAT), which taxes the items you purchase to enhance a business’s value but allows you to recover the tax by collecting it from customers.
Example: a businessman owns a hardware store. He needs a new light fixture so he goes and buys one at a cost of $100.
Under the HST system, it doesn’t matter whether lighting is a piece of tangible property, he still has to pay 12 per cent in HST on it – in this case, a total of $12 on top of his purchase. Only now, he can recover any tax he pays by collecting HST from customers.
A customer will come into the store, buy a hammer, a screwdriver, anything else you might get from a hardware store, and pay 12 per cent in HST on top of it.
On a tax return at the end of the month, the business owner can claim the amount of tax he paid on his expenses, as well as how much he collected from customers. If he’s collected double the amount of tax from customers that he spent on his own expenses, he can essentially paying himself back the tax he paid on his expenses.
The federal government collects all revenues from the Harmonized Sales Tax and gives seven per cent of the revenue back to British Columbia.