British Columbia plans to harmonize its provincial sales tax with the federal goods and services tax (GST) effective July 1, 2010, to boost new business investment, improve productivity, stimulate economic growth and create jobs.
"This is the single biggest thing we can do to improve B.C.'s economy," said Premier Gordon Campbell.
"This is an essential step to make our businesses more competitive, encourage billions of dollars in new investment, lower costs on productivity and reduce administrative costs to B.C. taxpayers and businesses.
"Most importantly, this will create jobs and generate long-term economic growth that will in turn generate more revenue to sustain and improve crucial public services."
B.C. will have the lowest harmonized sales tax (HST) in Canada.
It will combine the 7% B.C. provincial sales tax (PST) with the 5% federal GST, for a single sales tax rate of 12%.
All other provinces with an HST, and the one proposed by Ontario, have a rate of 13%.
It's estimated the HST will remove more than $2 billion in costs for B.C. businesses.
That will include an estimated $1.9 billion in sales tax removed from business inputs, which should sharpen competitiveness, raise investment and productivity and, ultimately, increase prosperity.
For example, some savings would include about $880 million for the construction industry, $140 million for manufacturing, $210 million for the transportation industry, $140 million for the forestry sector and $80 million for mining and oil and gas. In addition, B.C. businesses will also save an estimated $150 million annually in compliance costs.
Similar to PST exemptions, the B.C. HST will provide consumers with point-of-sale rebates on a number of products, including gasoline and diesel fuel for motor vehicles, books, children's-sized clothing and footwear, children's car seats and car booster seats, diapers and feminine hygiene products.
The proposed HST will include:
an automatic point-of-sale rebate so consumers don't have to pay the provincial portion of the HST at the pump for purchases of gasoline and diesel fuel for motor vehicles, including any biofuel components;
a partial rebate of the provincial portion of the single sales tax for new housing to ensure that new homes up to $400,000 will bear no more tax than under the current PST system, while homes above $400,000 will receive a flat rebate of about $20,000;
a refundable B.C. HST credit paid quarterly with the GST and carbon tax credit to offset the impact of the tax on people with low incomes; and
a temporary delay in the provision of input tax credits for certain purchases by businesses with taxable sales in excess of $10 million.
The federal government will provide British Columbia with $1.6 billion in transitional funding in recognition of the improvement the change will make to business competitiveness in Canada.
The full cost of administration will be borne by the federal government, saving the province an estimated $30 million annually in administration costs.