In British Columbia, the Provincial Sales Tax (PST) and the Goods and Services Tax (GST) were combined together to create the Harmonized Sales Tax (HST). The goal was to increase the overall revenue of the area by around 3 million dollars. The HST ended up being around 13%, due to the fact that the PST was 8% and the GST was 5%. Many people who were under this tax opposed it because it would make it harder for families who had low incomes and incomes in the middle to make ends meet, despite the tax credit of $1000 that was designed to help ease the transition.
Why Did the HST Fail?
The HST failed for the same reasons why tax systems tend to fail. The first is because it was implemented too quickly. When a tax change happens too fast, there is a huge chance that there will be technical and legal issues. This will increase resistance to the tax and make it less likely to be supported by voters. The second reasons why a tax system would fail is if it will get rid of too many exemptions. People who do not make a ton of money will be accustomed to the tax exemptions that they receive. Should a new tax system get rid of those exemptions, then those who are hurt by the transition will be less likely to support it and more likely to try to have it dismantled.
When Will the Change be Made to Go Back to the PST?
Although no specific date has yet been set for this change to be made, an Independent Panel Report states that the overall process will take about eighteen months. A plan is being developed by the provincial government that will allow for this process to take place.
First, a letter conveying a referendum regarding the HST will be sent from the provincial finance minister to the federal finance minister. Next, the federal government will assist the provincial government in creating all of the necessary rules and guidelines that will be put into place. The third step is for a plan to be determined for the funds that were provided under the Comprehensive Integrated Tax Coordination Agreement to help the provincial government transition to the HST to be returned. The fourth step is for all of the different rules and guidelines to be implemented slowly so that the economy can take time to adjust to the new taxes. A system for reporting needs to be created so that any information that is gathered can be organized and analyzed to make sure that the transition is going as planned. Computer systems, billing and auditing processes, and the assessment and appeals process will be developed to accommodate the new tax and make sure that it is able to be implemented without issue.
Why Can’t it Happen Immediately?
If the PST were to replace the HST immediately, none of the different computer systems in the area would be able to process the new payments, the tax credit system would be thrown into chaos, and there would be a very confusing time with regards to government collection that would be impossible to avoid. To keep this from happening, the government is planning to register 100,000 businesses as tax collectors before the PST is even reimplemented. Taking additional time will also allow businesses to set up their machines that are used to process sales so that they charge the correct amount of tax. The time will also allow both collecting procedures and transitional guidelines to be edited so that they are as effective as possible and will be able to accommodate any problems that crop up.
Will the HST be in Place Until the Change is Made?
The HST will be in place until the PST and the GST are returned. This is because it is necessary for the government to continue to collect revenue so that it is able to continue to function. This is important because, without the revenue, the government will not be able to provide its usual services. The HST will not be reduced throughout the transition process in order to keep things simple.
Will the HST Credits be in Place Until the Change is Made?
Yes. Until the PST goes fully into effect, there will be no PST credits. In order to ensure that those who depend on credits are able to stay financially solvent, the HST tax credits will remain functional. This should keep the transitional period easy and as stress-free. Once the PST has been put into place, the credits will transition to the agreed upon PST credits.
The fact that a referendum was voted on by the people shows that they are in favor of this change from HST to PST. As a result, the change will be supported and is likely to please many.
PHOTO CREDITS: Corey Burger