Clearly the BC provincial taxation branch felt their ears burning after my rant on wine last Tuesday and decided to announce today its intention to harmonize the BC provincial sales tax (PST) with the federal Goods and Services Tax (GST) effective July 1, 2010.
What does this mean?
This means BC will be combining the 7% BC Provincial Sales Tax with the 5% Federal GST for a single “Harmonized Sales Tax” (HST) of 12%.
What’s the big difference?
The PST was a standard form of tax on goods and some services when they are purchased for use or consumption. Our PST is considered a “cascading tax” because it applies to the sale of goods regardless of the purchaser. As a result, businesses pay much of the tax on their input costs and recover their cost by incorporating it in the price of the goods and services to be sold to consumers (who may be individuals or other businesses) who will in turn pay PST again when making their purchase. By now you know how I feel about a tax on tax scenario. Grrrrrr.
The HST will be a value-added tax with similar characteristics of the GST with a few exceptions. Adopting an HST eliminates taxes on productivity (e.g. they deduct the tax they pay on inputs) replacing them with taxes on consumption only.
Is this a good thing?
It depends. Some goods covered by GST were PST exempt (e.g. restaurant meals excluding alcohol, bicycles, magazines, etc.) so you will end up paying 7% more on those items. However, if you were a PST heavy input business your retail prices should be going down which would be good for consumers. I wonder: will you really reduce your price or will it just flow to the bottom line?
How will it impact us - the little guy in technology?
Well, get ready to update that accounting software, remittances, etc.! As we charge PST already, if you have a presence in British Columbia, this just becomes a reporting change. Although it will effect capital purchases and some inputs. I’m sure there will be alot more discussion in the run up to July 2010 and I’m hoping some tax credits for small business in order to make the change over less costly.
A client of mine is having a PST audit in early August so I will be sure to ask more of the BC taxation representative then and update accordingly.
Now, Mr. Finance Minister Colin Hansen, how we doing on working out that wine import tax? I’m still an unhappy gaffer. Just sayin’.
1 comment so far ↓
A slight correction to your article — all retail businesses in BC currently pay 0 % PST on their inventory of stock for resale and only pay 7 % on their operating costs. PST is collected on the final selling price and remitted soon thereafter. As Inventory is a retailer’s biggest single cash investment or use the move to HST will have a huge impact on retail business in BC especially the small guys. Our upfront cash outflows will immediately go up by 7% and the tax will only be recovered when the goods are sold — sometimes this can take 6 months or more. Thus retailers will have less cash to purchase stock with and I will have to reduce my inventory purchases. Additionally I will have to put up my prices to compensate (only partially and very slowly) for my increased cost of carrying a wide selection of products for sale. As well the current PST system give back a commission to tax collectors of .46% which will no longer be the case. HST will be very good for business which don’t carry retail inventory (eg construction and manufacturing, service industries) but horrendous for smaller retailers who don’t have the resources or access to finance this increased cost.
Leave a Comment