With the defeat of the harmonized sales tax (HST), British Columbia may suffer a loss in its competitiveness unless the Provincial Government makes some which would allow businesses to innovate, expand and upgrade. The HST’s greatest benefit was that it exempted all inputs used to create goods and services, thereby reducing the cost of doing business. A return to the Provincial Sales Tax (PST) will mean that certain items purchased by both small and large businesses will cost more because of this tax, increasing their cost of doing business, and, of course, decreasing their competitiveness.
The Fraser Institute, a politically conservative think tank based in Vancouver, has put forth some options which may help offset the impact of restoring the PST, including the following:
- Completely eliminating the B.C. corporate incometax rate of 10% – the proposed reduction of the HST from 12% to 10% would havecost the province the same amount of tax revenue as that presently raised
through corporate income taxes.
- Allowing a complete sales tax exemption on machinery, equipment and technology for all businesses – this option is not ideal since not all business inputs would be exempt for many businesses
- Move to an integrated approach to corporate and personal income taxation by instituting a flat tax – all sources of income, whether business income, capital gains, wages and salaries and interest income
would be taxed at one rate (probably about 8%). In addition, all savings and investment would be exempt from the tax which would give businesses the incentive to increase investment and encourage
individuals to work, save and take business risks.
Without additional tax changes, the Fraser Institute states that B.C. will be left behind and risks losing much needed, job creating, investment that will gravitate to jurisdictions with more competitive tax policies.
It will be interesting to see what steps the Province will take to recover from the possible economic blow related to the re-introduction of the Provincial Sales Tax.