HST critics are claiming the tax is stimulating a black market in home renovations despite warnings from consumer protection advocates against hiring contractors seeking verbal contracts and cash payment.
Such arrangements could lead to substandard and/or incomplete work and there is no legal recourse if the job is botched.
“The HST is helping to fuel an already burgeoning underground cash economy in home renovation,” Greater Vancouver Home Builders Association CEO Peter Simpson told media last week.
B.C. Finance Minister Colin Hansen told Business in Vancouver he does not think the HST stimulates an underground economy.
“Studies that have been done in other value-added tax countries argue that, in some cases, the value-added tax reduces the underground economy,” Hansen said.
“If you take somebody who is going to do something for cash, they are still paying the HST in all their inputs. If they are doing it legitimately, the business doing the service gets to claim back all their input tax under the value-added tax system. If they get paid cash they don’t get that.”
He then used an example of a carpet layer.
Carpet company owners would pay 12% HST when they buy the carpet. They pay the 12% HST on all of their equipment and on the truck that they use to provide the carpet-laying service.
Hansen said, “If they’re doing a cash business, then they don’t get to claim back the HST that they’ve had to fork out because the input credits work basically by being deducted from the HST that would have to be remitted.”