Blogs & Comment

Still grumbling as the HST looms

As implementation dates draw ever closer in Ontario and B.C., the Harmonized Sales Tax (HST) seems as inevitable as the April showers we are currently experiencing in Ontario. But business owners and consumers dont seem to be expecting May flowers.
It appears, in fact, there is a lot of grousing and grumbling going on. One manifestation is the stream of comments that readers keep adding to HST posts on this blog(which now easily give those posts rankings in the top ten by reader response). Heres one such post, for example, from last year and still drawing comments. This phenomenon also seems to be apparent on other blogs, like this one.
Another manifestation is the findings of a survey conducted by the Canadian Federation of Independent Businesses (CFIB) several months ago. Here are some of the issues identified in the survey:
1. Underground economy:An important issue is the encouragement given to the underground economy. When the sales taxthat can be avoidedrises from 5% to 13%, the incentive increases for unrecorded transactions. This puts businesses that play by the rules at a disadvantage.
I anticipate more customers wanting to do cash business thinking they will save on the taxes, said one survey respondent. We can’t compete with someone who doesn’t charge or collect sales taxes, pays no WSIB premiums, no source deductions and has carries no insurance.
2. Negative impact on cash flow:Firms that sell on credit will experience new challenges with managing cash flow. Many will have to remit HST on a monthly cycle yet they dont get paid until after the month. One survey respondent noted: It will be very difficult to submit 13% of sales per quarter when it takes 65 to 540 days to get paid for my work. The cumulative effect will kill me. It is a really bad idea.
3. Negative impact on sales and profit margins:Firms not charging PST previously to clients may see customers lost or else have to raise prices by a lesser amount than the 8%added to the GST.
Although there are minor advantages for my business in harmonizing the taxes (slight increase in input tax credits), this harmonization will have a major negative impact on my sales as well as my bottom line. About 90% of our clients are currently [PST] exempt. This 8% additional cost that we must charge will lower our sales as they will refuse more estimates for our services.
4. Administrative burden:Sales taxes create an extra burden for businesspersons, especially operators of small companies. There is a lot of paper work to fill out and procedures to follow. Businesses often struggle to understand which goods and services are taxable and this confusion can lead to errors, audits and appeals. Then there is a rather large government bureaucracy required to collect and enforce the tax. A CFIB study estimated the annual cost of complying with the GST/HST at $3.1 billion. Even if the CFIB overestimated the cost and it was closer to half this amount, it is still a considerable deadweight on the economy.
5. Compensation:If there is to be a HST, then at least compensate businesses for serving as tax collectors for the government. There was compensation provided to Ontario businesses collecting the Provincial Sales Tax (PST). It wasnt a lot, but to small businesses, it was significant. The HST provides no compensation to businesses for collecting the HST.
One of the respondents to the CFIB survey on the HST remarked: It costs small business owners to collect tax on behalf of the government. I feel that we should get compensated for tracking sales tax owing, collecting the funds and remitting them. Especially since the banks charge a fee for making any remittances to the government.