May 3, 2017 7:20 pm
Updated: June 21, 2017 3:38 pm

How True is It? Value Added Tax is HST by another name

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The HST is likely one of the biggest debacles of the BC Liberal reign, so word from the NDP that Christy Clark is thinking of bringing it back has been a hot topic.

The BC NDP have been accusing the BC Liberals of having a secret agenda to bring back the HST, saying a Value Added Tax would shift billions from business to people.

 

NDP Candidate in Victoria-Beacon Hill and former party leader Carole James explains.

“The BC Business Council has pushed for years, and again this past year, to bring back the HST, to put that back on the table, to have that discussion,” James says.

“They know the NDP, like the people of British Columbia, have said no to the HST, but they see an opening and they see an opportunity to make sure they can get big tax cuts for businesses and put the tax burden on the public.”

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James says the VAT would, in essence, implement something similar to the HST.

“The real agenda is to move back to the HST again. I think the competitive tax panel that the BC Liberals put in place in 2016 said that, the BC Business Council supported it, and I think you see games being played in the last week of the election.”

Clark says no to HST

So, is it true? Clark says absolutely not.

“We’ve said that we are going to talk about all the things they’ve recommended, but it isn’t going to be anything that, we won’t end up anywhere that looks like an HST. Absolutely not.”

She does, however, say tax competitiveness is an important issue with the Trump administration strong-arming Canada.

“We should always be talking about tax competitiveness, though, for heaven sakes. The Americans are talking about cutting taxes dramatically. The Americans are talking about massive moves to protectionism. We need to make sure we’re tax competitive, which is something we have been doing since I became premier four years ago,” Clark says.

“So, we’re going to keep working on that. And there’s a whole bunch of different ways we could do it. I know some people in the business community think the HST is how we should do it. It isn’t the way I’m going to do it.”

VAT vs HST

Clark’s response makes many questions arise from this debate.

The first is whether a Value Added Tax or VAT, as recommended by the Tax Competitiveness Commission, is the same thing as the HST as the NDP suggests.

Ross Hickey, Assistant Professor at UBC Okanagan, says it isn’t an exact parallel.

“It’s kind of like comparing a square and a rectangle. A square is a rectangle, but a rectangle isn’t necessarily a square. Right, so an HST is a Value Added Tax, but there are ways of having a Value Added Tax that is not an HST.”

So, what exactly is the difference?

“Value Added Taxes, what they allow for is intermediate inputs in the production of final goods to escape taxation. Only the value added is being taxed in each stage of the production process. And the way that works is that anyone that’s producing that good can essentially apply for a refund of any of the sales tax that was being paid on the inputs that they purchased in order to produce that good or service,” says Hickey.

LISTEN: Could a possible Value Added Tax be the HST all over again?

“The Harmonized Sales Tax is a Value Added Tax where the tax base has been harmonized between the federal and provincial government. So that means that if there’s a good or service, with some exceptions, that’s taxed under the GST, it is also going to be taxed under the HST.”

Then what about the BC NDP claim a VAT would shift billions in taxes from business to people?

Hickey says technically it is true that consumers would be paying taxes that businesses wouldn’t be, but it’s not that simple.

In fact, without it, Hickey says those taxes businesses pay are just passed onto consumers in the form of higher prices.

“I mean one of the easiest ways to think about it is imagine I’m selling blueberries, and I can put them in a plastic container that I buy and I pay PST on it. If there was HST, I wouldn’t have to pay that tax on the plastic container, but with a PST I would. What I might do is apply the entirety of that tax rate that I pay on the plastic containers to the final product. If it turns out to be about 15 cents on the dollar, I increase my price by 15 cents on the dollar, so I pass it on completely.”

Does it make sense for B.C.?

Then is it possible the BC Liberals could talk about VATs that are not the HST?

Hickey says yes, but it wouldn’t make sense for BC.

“If we were going to introduce a VAT, there is no more efficient way for us to do that than to introduce the Harmonized Sales Tax. Any other kind of VAT that we would introduce, I can’t see it being to our benefit the way the HST was. I don’t know if we could get the same kind of deal if we wanted to re-introduce the HST.”

Specifically, without the $1.6-billion the federal government gave B.C. to harmonize the PST and HST, a significant value of a VAT is gone, not to mention a loss of efficiency.

“Part of the great savings in having the Harmonized Sales Tax is that it’s administered by the federal government. What makes that particularly important, in this case, is that because these Value Added Taxes have a disproportionate incidence on consumers, we want to remedy that for equity purposes by making transfers to low-income households. Administering that is best done by the federal government. The federal government is already administering our provincial income tax.”

One thing Hickey does expect, though, is that any conversation around Value Added Taxes in the future – if politicians decide to go down that road – will include significant public conversation.

The biggest problem with the HST, after all, is not the tax policy, but the way it was introduced.

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