Proposed Canadian provincial sales tax increase reversed

provincial sales tax

Many state and local governments have turned to sales tax increases in order to address growing budget deficits. But the newly installed government of one Canadian province has decided to change course and cancel a planned provincial sales tax increase that was scheduled to take effect in 2016. It may be the first and only case in North America of such a reversal.

provincial sales taxIn Canada, unlike the United States, sales taxes is assessed at both the federal and provincial level. The federal portion of the tax, known as the Goods and Services Tax (GST), is 8%. This is added to each province’s sales tax to form what is called the harmonized sales tax (HST). Newfoundland and Labrador currently charges a 5% provincial sales tax, making its HST 13%.

Back in April, the government of Newfoundland and Labrador announced a 2% increase in the provincial sales tax, which would have raised the HST to 15% as of January 1, 2016. Then-Premier Paul Davis and his cabinet said the additional tax revenue was needed to “facilitate a return” to a surplus in the government’s budget by 2021. At the time, the government estimated it would run a deficit of about $1 billion in 2016.

But on November 30, Davis and his Progressive Conservative Party lost their majority in the provincial legislature following a general election. Liberal Party leader Dwight Ball was sworn in as the new premier on December 14. During the provincial election campaign, Ball said his “first order of his business” would be to rescind the 2% sales tax increase. And he kept his word. On December 3, Ball formally asked Bill Morneau, the finance minister for Canada’s federal government, “to take the required measures to ensure the general sales tax rate remain at 13 per cent after December 31, 2015.” Morneau, who recently took office himself, had to sign off on this action because the federal government is actually responsible for collecting the HST.

As of this writing, however, there is still some confusion among local businesses in Newfoundland and Labrador as to what sales tax rate they should charge customers come New Year’s Day. A local business leader told the Canadian Broadcasting Company, “small business owners are being left in the dark, and Canada Revenue Agency needs to make more details available.” After all, the official noted, it is businesses which collect the harmonized sales tax, and “[a]s such, they need to know when to adjust cash registers, accounting software and other details.” However, a press release from Newfoundland and Labrador’s Department of Finance, issued shortly after Premier Ball was sworn in, emphatically stated “the federal government has agreed” to the new government’s request to keep the sales tax at 13%.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

 

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