Provincial sales tax and GST harmonization – goods and services tax

Provincial sales tax and GST harmonization – goods and services tax – Tax Executives Institute

On October 11, 1994, Tax Executives Institute submitted letters to the ministers of finance for all Provinces in Canada, which urged the ministers to continue meeting with representatives of the federal government in the ongoing dialogue concerning alternative taxes to replace Canada’s Goods and Services Tax (GST). The letters from TEI President Linda B. Burke reminded the provincial ministers of the enormous administrative and compliance costs associated with maintaining separate provincial retail sales tax systems and urged them to move toward the adoption of consumption tax systems that were fully harmonized with the federal GST. The letters were prepared under the aegis of the Institute’s Canadian Commodity Tax Committee, whose chair is Pierre M. Bocti of Hewlett-Packard (Canada) Limited. A representative letter is reprinted below.

In June, following its review of Canada’s Goods and Services Tax (GST), the House of Commons Standing Committee on Finance released its report containing numerous recommendations for improving the administration of, and compliance with, the GST or alternative form of consumption tax. Tax Executives Institute, Inc. (TEI) welcomed the Standing Committee’s comprehensive study of the GST and submitted numerous comments for its consideration. (A copy of TEI’s submission to the Standing Committee is enclosed for your consideration.) Since the issuance of the Committee’s report, federal and provincial finance and revenue officials have engaged in numerous discussions to explore ways to implement the Committee’s findings and recommendations. We write to express our support for the continuing consultations and to urge that the provincial government embrace as a guiding principle–as did the Standing Committee–harmonization of the federal and provincial consumption tax systems.

Background

Tax Executives Institute, Inc. is an international organization of approximately 5,000 professionals who are responsible–in an executive, administrative, or managerial capacity–for the tax affairs of the corporations and other businesses by which they are employed. TEI’s members represent more than 2,800 of the leading corporations in Canada and the United States. Canadians make up approximately 10 percent of TEI’s membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up one of our nine geographic regions. In addition, a substantial number of our U.S. members work for companies with significant Canadian sales or operations. TEI’s membership includes representatives from most major industries.

TEI has historically been concerned with issues of tax policy and administration and is dedicated to working with government agencies in Ottawa (and Washington), as well as in the provinces (and the states), to reduce the costs and burdens of tax compliance and administration to our common benefit. We are convinced that the administration of the tax laws in accordance with the highest standards of professional competence and integrity, as well as in an atmosphere of mutual trust and confidence between business and government, will promote the efficient and equitatble operation of the tax system. In furtherance of this principle, TEI supports efforts to improve the tax laws and their administration at all levels of government.

Need for Harmonization

Since the inception of the federal GST, the provinces have opted to retain generally their separate retail tax systems. The lack of harmonization between the overlapping, but divergent, consumption tax regimes creates considerable confusion for taxpayers who must interpret and comply with differing definitions, exemptions, rates, etc., with respect to the taxes imposed on the sale or provision of various goods and services. In addition, complying with the requirements of the separate tax systems imposes considerable administrative costs. These costs relate in particular to the design and maintenance of accounting information systems to capture data necessary to compute and report the proper consumption tax liability, to collect and remit the tax, and, for GST purposes, to calculate the proper amount of input credits. In addition, the separate tax systems requires that the federal and provincial governments maintain separate, distinct and, to a certain degree, redundant administrative systems and processes to collect the tax and ensure compliance with its various requirements.

TEI has long advocated sales tax harmonization. In 1889, we expressed regret that the federal tax reform proposals did not encompass the provincial sales tax systems and argued that an integrated federal-provincial program would reduce the complexity and administrative costs associated with separate tax systems. The experience of taxpayers with the GST has borne out our observation that a truly workable system requires a “piggyback” mechanism to facilitate the expeditious implementation of a joint system. To increase Canadian competitiveness, full and complete harmonization–i.e., an identical tax base with a single tax rate and a unified administrative system for the federal and provincial taxes–is necessary. The long-term objective should be to establish a unified federal and provincial multi-stage sales tax.

TEI is mindful that significant political, fiscal, and administrative hurdles must be surmounted to satisfy the provinces’ concerns in respect of a fully harmonized consumption tax system. In particular, to alleviate the potential revenue loss to the provinces that may arise from granting input credits for corporate-paid retail sales taxes, it may be necessary to phase-in input tax credits. Another area requiring careful deliberation is the development of an administrable system to allocate tax revenues and input credits among the provinces in respect of cross-border purchases and sales of goods or services.

These are issues to solve, however, not issues to preclude further consideration. Hence, we urge the province–to continue its dialogue with the other provinces and the federal government (as well as taxpayers)–a vitally important consultative process–to seek solutions to achieve full harmonization of the federal and provincial consumption tax systems. Moreover, the Institute stands ready to assist the government in addressing the issues and crafting solutions to achieve that harmonization.

Should you have any questions concerning the Institute’s letter or wish to avail yourselves of our offer of assistance, please do not hesitate to call either C. Graham Kennedy, TEI’s Vice President for Canadian Affairs, at (604) 681-8549 or Pierre M. Bocti, chair of the Institute’s Canadian Commodity Tax Committee, at (905) 206-3399.

COPYRIGHT 1994 Tax Executives Institute, Inc.

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