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October 23, 1996
(Finance)


Province Signs Detailed Agreement on Harmonization of Sales Taxes

Paul Dicks, Minister of Finance, announced today that the Government of Newfoundland and Labrador has signed a Comprehensive Integrated Tax Coordination Agreement respecting sales tax harmonization with the Government of Canada. This follows a Memorandum of Understanding which the province signed with the federal government on April 23, 1996 to pursue a detailed agreement on the harmonization of the provincial Retail Sales Tax with the GST.

The province joins with Nova Scotia and New Brunswick who have also signed detailed agreements with the federal government on sales tax harmonization. This is the next step in the process leading to the implementation of a combined tax system on April 1, 1997 and brings us one step closer to a national harmonized sales tax that will help achieve a fairer, simpler and more efficient tax system in Canada.

The minister also made available today a technical paper which provides the details of how the harmonized sales tax system will operate. This document will form the basis for draft legislation which will be released later this year.

"The new Harmonized Sales Tax (HST) will result in the replacement of the current RST and GST with a single, combined value-added tax. The tax will have a substantially lower rate, reduced almost five percentage points to 15 per cent, and will be administered by Revenue Canada on behalf of the participating provinces," said the minister.

"While the HST will apply to the same goods and services which are currently taxed by the GST, I am pleased to announce today, that a point of sale rebate will be introduced for books equivalent to the eight per cent provincial portion of the HST. This means that there will be no additional tax burden placed on books as a result of harmonization."

The HST will be fairer to consumers. Applying the tax to a broad range of goods and services gives government the flexibility to provide a substantial reduction in the sales tax rate of almost five percentage points and will ensure a greater degree of fairness in the treatment of individuals and families which consume different mixes of taxes and services.

"Consumers have expressed a strong preference for full disclosure of the tax-inclusive price in advance of their purchase," said Mr. Dicks. "Effective April 7, 1997, retailers will be required to disclose the tax-inclusive price to consumers in advance of their purchase. This will eliminate the need for a mental calculation of the tax and avoid the so-called cash register shock. To ensure visibility of the tax, retailers will be required to display the tax on their cash register receipts, and will have the option of showing both the tax inclusive and tax exclusive price prior to purchase."

Under the existing RST, sales tax paid by business becomes embedded in the price of the goods and services which they sell. Under the HST businesses will be provided with full input tax credits which will remove these embedded taxes and result in a lower cost of doing business and lower prices for consumers. Goods and services produced in Newfoundland and Labrador will become more competitive with those produced elsewhere enabling our businesses to better compete both internationally and domestically. This will protect existing jobs and enhance future employment opportunities.

Retailers who make sales in the harmonized region will be required to collect tax at the harmonized rate of 15 per cent. Businesses in Newfoundland and Labrador will no longer have to struggle against unfair, tax-based, competition from outside the province. Further, Newfoundland and Labrador businesses will be required to collect only the GST for sales made outside the harmonized zone, and Revenue Canada will collect the HST at the border on goods imported into Canada, destined for the harmonized region.

The cost of complying with tax laws will decrease. Businesses will have one set of tax laws, rules and regulations instead of the two which currently exist. This will reduce the compliance and paper burden on business, and allow business to concentrate on more productive activities.

Businesses who are currently registered for the GST will automatically be registered for the harmonized tax. In order to keep the tax system as simple as possible for businesses, registrants will not be required to separately track the seven per cent GST from the 15 per cent HST; there will be no need to segregate the provincial component from the federal component on the tax return. Input tax credits will be claimed based upon the amount of tax (GST and HST) paid.

The harmonized tax will be administered by Revenue Canada. To ensure service efficiency, Revenue Canada will establish a presence in Corner Brook, Grand Falls-Windsor and Clarenville, in addition to the existing Tax Services Office located in St. John's.

Up to 70 provincial tax administration employees will transfer to Revenue Canada by October 1997. The province will continue to administer other taxes and will be responsible for winding down the Retail Sales Tax.

Copies of the technical paper can be obtained by calling the federal Finance Department Distribution Centre at (613) 943-8665. Beginning today, Revenue Canada will operate a telephone information service for Canadians in the participating provinces who want information about the HST. The phone line will be open from 8:45 a.m. to 5:30 p.m. in Newfoundland. Following are the toll-free numbers: English, 1-800-959-8286; French, 1-800-959-3384; telecommunications device for the deaf/hearing impaired, 1-800-665-0354. Information is also available on the provincial government's Internet site at / and individuals can seek answers to questions through our E-mail account at txpolicy@fine.gov.nf.ca


BACKGROUNDER
An Overview of Sales Tax Harmonization

On April 1, 1997, the current retail sales taxes in Nova Scotia, New Brunswick, and Newfoundland and Labrador and the federal GST in those provinces will be replaced by a single, harmonized value added tax, which will be called the Harmonized Sales Tax (HST).

The HST will apply at a single rate of 15 per cent on the same base of goods and services as the current GST. Seven percentage points will represent the federal component and eight percentage points the provincial component.

In Newfoundland and Labrador, the rate decrease will be 4.84 percentage points - from a combined federal-provincial rate of 19.84 per cent to 15 per cent.

The reduction of the tax rate applicable on many goods and the broadening of the tax base at the provincial level will result in a provincial sales tax system that is more equitable in its treatment of goods and services.

ONE BASE, ONE RATE, ONE SET OF RULES

A key element of the new system will be a single set of rules and forms, and a single administration. The rules governing the operation of the HST will be set out in the Excise Tax Act, and will generally be those rules on which the GST currently operates.

This approach will ensure a smooth transition to the HST, and will maximize the compliance and administrative cost savings from harmonization. As a result:

  • Businesses in Newfoundland and Labrador will now deal with one, rather than two, tax administrations. The tax will be administered by Revenue Canada.
  • There will be no separate requirement to register for the HST. Businesses that are registered for the GST will automatically be registered for the HST. Accordingly, they will be required to collect and remit the tax at the harmonized rate of 15 per cent on any taxable supplies they make in the participating provinces. Similarly, businesses engaged in commercial activities that purchase goods and services in participating provinces that are taxed at the harmonized rate will be entitled to recover tax payable at the HST rate.
  • Registrants will continue to use the current GST return to calculate net tax remittances. When reporting tax collected and remitted -- and input tax credits claimed -- there will be no need for registrants to separately identify the federal and provincial components of the HST, or tax collected at the 7 per cent rate.
  • The HST tax base will be the same as the GST tax base. This means that items such as basic groceries, prescription drugs and medical services will continue to be free of tax.

A MORE TRANSPARENT SALES TAX

Under the current retail sales taxes, businesses pay tax on expenses that they incur in the production of goods and services that they sell. The prices that businesses charge for these goods and services therefore reflect these embedded taxes. A key advantage of the HST for registrants will be the removal of these embedded taxes from the cost of goods and services. This will make the tax payable on goods and services more transparent to consumers. In addition, businesses in the participating provinces will be able to price their goods more competitively. This will be particularly advantageous for exported goods, which will be free of sales tax.

A LEVEL PLAYING FIELD

Under harmonization, steps will be taken to ensure that businesses in participating and non-participating provinces are treated equitably. Specifically, the design of the HST will ensure that goods and services sold into Newfoundland and Labrador are subject to the same level of tax as goods or services sold by a business located in the province. Businesses across Canada that are registered for the GST will be required to collect and remit the 15-per-cent harmonized tax on goods or services sold into a participating province or shipped to a consumer in that province. For example, a supplier in Ontario who sells goods or services into Newfoundland and Labrador will be required to collect the 15 per cent HST. This requirement does not represent a new sales tax on goods or services sold into Newfoundland and Labrador. Sales tax on interprovincial sales has always been applicable. The new approach ensures that sales tax is collected and remitted in a more effective manner. At the same time, all businesses registered for the GST will be eligible for input tax credits in respect of HST payable on inputs into their commercial activities.

This approach ensures that businesses in the participating provinces are on a level playing field with businesses in non-participating provinces. This approach is also a clear benefit for provinces agreeing to harmonize and to adopt federal legislation, as they will have a more efficient tax collection system that minimizes tax-revenue leakage.

Special rules, which are described in detail in the technical paper, will determine when a supply of a good or service will be considered to be made in a participating province.

TAX-INCLUSIVE PRICING

New rules will ensure that consumers are aware of the full price they will have to pay before they make a purchase. Under this approach, vendors will be required to price on a tax-included basis to ensure that consumers are aware of the final price of goods or services before reaching the cash register. For example, a retailer selling a compact disc for $20 will have to show the total price including tax, which would be $23; the retailer can also show the tax-excluded price of $20 if desired. At the same time, receipts and invoices will show either the amount of tax paid or the rate at which tax has been charged, so that consumers will continue to be aware of how much tax they pay.

TREATMENT OF BOOKS

Newfoundland and Labrador, Nova Scotia and New Brunswick will provide point-of-sale rebates so that the provincial portion of the HST will not apply to any book sales in those provinces.

The federal government will implement a 100 per cent GST rebate on books purchased by municipalities, schools, universities, public colleges, public libraries, certain charities and qualifying non-profit organizations across Canada, effective immediately. The result will be that book purchases by these bodies will not be subject to the federal sales tax anywhere in Canada (including the federal portion of the HST in participating provinces).

TAX RELIEF FOR CHARITIES

The participating provinces will provide rebates for the provincial component of the HST to charities and qualifying non-profit organizations (other than public institutions) in the participating provinces. As under the GST, the rebate rates will be 50 per cent of non-recoverable tax paid.

REBATES FOR TOURISM

Given the importance of the tourism industry to the economies of the three participating provinces, the existing GST rebates for visitors and conventions will apply to the full 15 per cent HST rate.

NEXT STEPS

In the coming months, legislation will be tabled in the House of Commons and in the House of Assembly to implement the harmonized tax effective April 1, 1997.

In the meantime, the Government will be working with the business community to prepare for the HST. This will include providing further details on administrative aspects of the HST and on transitional measures associated with winding down the existing provincial retail sales taxes.

Contact: Karen McCarthy, Director of Communications, (709) 729- 0110.

1996 10 23                  5:20 p.m.


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