Canadian Manufacturing

HST: Has it helped or hurt?

One year in and small businesses in Ontario and B.C. is still undecided on HST

TORONTO—If British Columbia’s controversial harmonized sales tax (HST) survives, it could spur an additional 100,000 jobs over the next decade, says a new analysis from C.D. Howe

B.C. introduced a 12 per cent HST last summer, harmonizing its seven per cent retail sales tax and the five per cent federal GST.

That’s turned the province from a high tax, investment-unfriendly jurisdiction, to one that’s domestically and internationally competitive, the C.D. Howe report says.

It points to HST reform in eastern provinces that led to an 11 per cent increase in real per capita business investment. While B.C. is only expected to see a four per cent increase in investment and machinery and equipment by 2020, the impact is still significant, with estimates of an extra 113,000 jobs by 2020.

Increased exports, labour productivity, and workers’ wages are some of the other perks that B.C. can expect, the report says.

But with a referendum underway in B.C. to repeal the tax, clearly not everyone is convinced. Opponents have said the HST will wind up creating fewer jobs than expected while costing consumers an average of $350 more per year.

B.C. isn’t the only jurisdiction that could see the hot button issue re-opened.

A year ago, Ontario removed its eight per cent provincial sales tax on new equipment and materials but added the 13 per cent HST to a range of previously exempt items including gasoline, electricity and home heating.

As the province heads into a fall election, opposition parties are arguing the HST hasn’t created any savings. They say voters will pass judgment on the tax in the Oct. 6 election.

Just as economists and politicians remain divided on the HST, Canadian industry has yet to reach a consensus, according to Satinder Chera, vice-president of Ontario affairs with the Canadian Federation of Independent Businesses.

“The jury is still out in Ontario,” Chera says, adding that some businesses are coping better than others with the tax change.

“For manufacturing, HST has meant input tax credits to invest more heavily in machinery and equipment,” he says.

But even there, it’s not a clear story, Chera says, noting that under the old provincial sales tax, manufacturers could delay payment.

“Now, they have to pay both PST and GST upfront and get it back down the road. That extra eight per cent out of pocket can create cash flow challenges for some,” he adds.

There’s been at least one consensus over the HST.

“The surveys we’ve done show dealing with the CRA, which administers the tax, has not been a bed of roses.”

The CFIB has called for an HST fairness code, such as the ability to request an interpretation in writing and have outside parties involved in determining how a reasonable party would interpret such advice in disputes.

“Right now, a CRA agent can give a company with tax questions an answer and it may not be correct, but the employer is still deemed responsible. This puts businesses in an awkward position,” Chera says.

A fairness code with responses in writing would ensure accountability, he adds.

It’s also recommended Ontario at least reduce the HST and restore vendor compensation, which businesses could qualify for under the previous sales tax.

Want to chime in on the HST? Email us with comments.

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