Tough sales tax choices remain

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Finance Minister Kevin Falcon announces an 18-month transition period to switch B.C. businesses back to the old sales tax. It may be possible to do it sooner

VICTORIA – Bill Vander Zalm’s most fantastic claim after the defeat of the harmonized sales tax was that B.C. could go back to the old provincial sales tax in six weeks if the government wanted to.

Remember, this is the guy who once figured he could run an election campaign out of his car. He also promised to cut the price of beer, and then once elected, brought in a property purchase tax instead, without consultation. But I digress.

Vander Zalm’s typically simplistic analysis soon gave rise to another conspiracy theory. That’s the one that holds that the B.C. Liberals are dragging their feet on reinstating the old provincial sales tax so they can rake in added revenue for another 18 months. That would help repay the federal government $1.6 billion for the transition fund that helped B.C. institute the HST.

The finance ministry provided some details to get a better sense of the task ahead. First, there are 70,000 businesses in B.C. that switched their accounting and point-of-sale systems to the HST. It’s not likely that they kept notes, hardware and software on hand in anticipation of having to switch back.

Then there are the roughly 1,000 businesses that start up each month in B.C. Assuming most of that continues, by the time the federal and provincial governments undo the HST in March 2013, there will be thousands of businesses that have no experience dealing with the PST. They’re in for an unpleasant surprise.

Here’s one example. Smart Tax Alliance co-chair Mike Jagger got involved in the effort to defend the HST because of his experience running a security company in Vancouver. Due to the ambiguous nature of the PST rules, he got expert advice on how to pay the tax. Three different experts gave him three different answers.

You have probably heard by now that after the rejection of the HST by 55 per cent of voters, the PST is to be reinstated as it was before July 2010.

Finance Minister Kevin Falcon vowed, “I can assure British Columbians PST will not be applied to such items as restaurant meals, bikes and gym memberships – just as it was before the HST was introduced in B.C.”

That sounds pretty definitive. But I’ve learned in the last two years that there is seldom a simple answer with sales taxes.

For instance, should B.C. reduce tobacco taxes by seven per cent? Unless you’re a smoker, you probably didn’t notice that the HST raised the price of cigarettes by that amount. Tobacco was PST exempt, with the province historically having chosen to impose a separate “sin tax” instead.

Liquor taxes also went down under HST, from a 10-per-cent provincial tax to seven per cent. The B.C. government increased the Liquor Distribution Branch markup to hold onto the revenue, billing it as a policy move so as not to encourage drinking.

The hotel room tax also went down by a point under HST. Should that be raised? These are policy decisions that still must be made, with the province still in deficit.

• A correction to last week’s column: I referred to a PST reduction for Toyota Prius hybrids, suggesting it would be restored.

In fact this tax break had a sunset clause, and would have expired in March 2011 in any case. B.C.’s 2008 “green budget” brought in a series of PST incentives for fuel-efficient vehicles, from $1,000 to $2,000 depending on how carbon-efficient they were. PST exemptions were also extended to Energy Star appliances.

The centerpiece of that budget was the carbon tax.

Tom Fletcher is legislative reporter and columnist for Black Press and BCLocalnews.com

Follow me on twitter.

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