The joke is on municipalities when the GST and the PST return April 1.
All provincial municipalities will be receiving less and paying more when the two taxes return on April Fool’s Day, with the re-instatement of the Goods and Services Tax (GST) and the Provincial Sales Tax (PST).
There will be fewer taxpayer dollars to spread around this year on municipal budgets than under the Harmonized Sales Tax (HST) system.
Under the HST, a municipality would receive all of the federal tax paid for most goods and services back from the government, and 75 per cent of the provincial tax paid back.
However, under the renewed GST/PST tax scheme, while the federal tax is still refunded, the provincial portion is not.
The City of Trail will pay a little more but it will be of minimal impact to its operations, said Rino Merlo, deputy director of finance, around one or two per cent.
Merlo did a quick analysis of the tax return and on total expenses the city would incur in a year—and not all expenses are PST taxed—the change might mean an extra $180,000 in additional costs to the city.
“This is a dollar figure that we wouldn’t get back and therefore is costed to the city,” he said.
For example, on a $100,000 city purchase the total tax paid would be $12,000, with around five per cent ($5,000) to the federal government, and seven per cent ($7,000) to the province. The federal portion would be returned.
Under the HST system, the federal tax as well as 75 per cent of the provincial tax were returned to the city, for a total refund of $10,250.
Village of Montrose chief administrative officer Kevin Chartres said the village is trying to make purchases that are PST-able before the end of the month.
“Which is hard when your budget has not been set,” he said. “There definitely will be an impact (with the PST).”
Contractor work will be exempt of PST, but actual purchases will have both taxes on it. That works out to an extra five per cent on all goods a municipality has to buy, said Village of Fruitvale chief administrative officer Lila Cresswell.
“(PST) squeezes every area that we use supplies in,” she said. “The only ones not affected are contract services and those that are labour intensive.”
Cresswell said it could work out to a one per cent hit on an overall $6 million budget, possibly in the $60,000 range.
“It does have a negative impact on local government, for sure,” she said.
PST is a tax on the cost of doing business in B.C.—part of the cost of goods sold—and is not necessarily a good thing for businesses producing goods, says Ron Clarke of JBS Business Services.
The tax cascades right through the whole supply chain and is added to each stage of the production process, he said, so in that sense it does raise the cost of goods in B.C.
Through the HST, all businesses could claim the entire cost of the tax when an item was sold, deducting any HST paid to make that item.
“So, eventually, whoever buys it—and that’s why it was called an added value tax—that final user paid the 12 per cent HST,” he said.
He characterized the return to PST as a bane for business, creating a duplication of filing and records on a largely archaic, 60-year-old taxation system.
“Now there is a whole second regime of tax paperwork business has to deal with,” he said. “As a business person you are doubling your effort at the end of the day to supply the same amount of tax dollars.”
Once implemented, PST rules will for the most part be the same as before, applying to all the same goods and services. All PST exemptions will also be re-implemented, including basic groceries and prepared food (restaurant meals), personal services such as haircuts, dry cleaning and funeral services, admissions and memberships, bicycles, print media including newspapers and magazines.
“So the service industry will have a bonus on it immediately, that way, and ultimately the consumer will as well,” said Clarke. “It’s now a more attractive pricing for the consumer who come in and buys the cup of coffee or has the meal. But for those businesses selling goods, they now have two taxes to deal with and all of the issues around that.
“It’s not necessarily the best route for B.C .to have gone.”
PST will also once again be payable when a taxable good or service is acquired for personal use or business use, including purchase or lease of new or used goods, goods brought into B.C. for use in B.C., servicing of goods, telecommunication services including: internet access, non-basic cable, non-residential telephone services, cell phone use, satellite services and facsimile services and purchase of legal services.
Registration of approximately 100,000 businesses in B.C. using a new online system began in January, and many business owners have begun to update sales equipment, such as cash registers, to show the two tax rates.