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BC rejects the HST — implications for business and the province in general


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Canadian Indirect Tax News August 26, 2011 (11-2)

The result of the BC harmonized sales tax (HST) referendum has just been released and calls for the extinguishment of the HST and a return to the Goods & Services Tax (GST) and Provincial Sales Tax (PST). The vote was not especially close, with 54.73% of those who voted being in favour of returning to the old tax system. It is too early to tell what this will mean for BC. The Premier, Christy Clark, has indicated that the government has been working on a “Plan B” in the event of this result. Finance Minister, Kevin Falcon has confirmed that one of the first orders of business will be for the provincial Government to negotiate a deal with the federal Government to extricate itself from the HST, possibly without the repayment of the full $1.6 billion incentive payment. Secondly, the Government will need to decide whether to reinstate the PST in its previous form or make some changes, perhaps reducing exemptions or expanding the tax base. Currently, the Government is indicating that it plans to keep the original exemptions but will look at ways to make it easier for businesses to file and report their taxes. Finally, they will have to rehire a collection and enforcement staff, many of whom are now employed by the federal government. The government has said it could take up to two years to fully complete the transition but they are aiming to do so by March 31, 2013 or earlier if possible.

For most businesses, the return to the PST will not be good news. Many businesses spent a considerable amount of money and resources adjusting their systems to account for the HST. While the HST was allowing them to recoup many of these costs through input tax credits, the return to PST in such a short time will mean they have not had time to reap the benefits from these upfront costs and will possibly result in an increase in prices. Businesses will again have to deal with two tax filings, and for many smaller businesses the provincial filing will be due monthly while the federal filing is due quarterly. Furthermore, it will be back to multiple audits, differing exemptions and a whole host of compliance issues. Some businesses in the service industries may be glad of the return to the two-tax system if it means their services are not taxed. This generally includes businesses in the personal service areas such as hairdressers, as well as restaurants. Suffice it to say, the upcoming year will be a year of uncertainty around sales taxes for businesses in BC and this is likely to impact investment in the province.

Deloitte remains committed to working with governments, academics, business and other key stakeholders to help shape tax policy that positions BC to be nationally and globally competitive. While we support the HST, we intend to do what we can to influence a modernization of the returning PST system. We will continue to work to ensure that our clients remain as competitive as possible under the emerging system and to help them adapt to the new system with a minimum of disruption and costs.

Janice Roper, Vancouver