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Goods and Services Tax (Canada)
The Canadian Goods and Services Tax or GST ( Taxe sur les produits et services , TPS ) is a multi-level sales tax introduced in Canada in 1991 by Prime Minister Brian Mulroney . It operates in many respects like the value-added taxes found in Europe . The introduction of the GST was very controversial, and, in the subsequent general election , it was a contributing factor to the biggest defeat of a federal governing party in Canadian history.
Structure While it is similar to European value-added taxes, the GST was more directly modelled on a similarly named tax in New Zealand. The tax is a 7% charge on the sale of all goods and services, except certain essentials such as food, residential rent, and medical services, and certain services such as financial services. The tax is levied on each sale. Businesses that purchase goods and services as inputs can claim "input tax credits", i.e., in general terms, they deduct from the amount of GST they have collected the amount of GST that they have paid. This avoids "cascading", i.e., the application of the GST on the same good or service several times as it passes from business to business on its way to the final consumer. In this way, the tax is effectively borne by the final consumer. Exported goods are exempt. Individuals with low incomes can receive a GST rebate calculated in conjunction with their income tax. In 1997, the the provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador and the Government of Canada merged their respective sales taxes into the Harmonized Sales Tax (HST). In those provinces, the HST rate is 15%. HST is administered by the federal government, with revenues divided among participating governments according to a formula. All other provinces continue to impose a separate sales tax at the retail level only, with the exception of Alberta, which does not have a provincial sales tax. In PEI and Quebec, the provincial taxes include the GST in their base. The three territories of Canada (Yukon, Northwest Territories and Nunavut) do not have territorial sales taxes. The government of Quebec administers both the federal GST and the provincial QST. It is the only province to administer the federal tax.
Untaxed items The tax is a 7% charge on all goods and services except certain items that are either "exempt" or "zero-rated":
For tax-exempt sales, vendors do not charge tax on their sales. By the same token, however, they are not entitled to credits for the GST paid on inputs bought for the purposes of making the exempt good or service. Tax-exempt items include residential rents, health and dental care, educational services, day-care services, legal aid services and financial services. Background In 1989, the Progressive Conservative government of Prime Minister Brian Mulroney proposed the creation of a national sales tax. At this time, every province in Canada except Alberta already had its own provincial sales tax imposed at the retail level. The purpose of the national sales tax was to replace the Manufacturers' Sales Tax (MST) that the federal government imposed at the wholesale level on manufactured goods. Manufacturers were concerned that the tax hurt their international competitiveness. The proposal was an instant controversy: a large proportion of the Canadian population was irate and disapproved of the tax. Although the GST was promoted as revenue-neutral in relation to the MST, the shifting of the tax away from exported manufactured goods would make life more costly for Canadians. The other parties in Parliament also attacked the idea. The Liberal-dominated Senate refused to pass the tax into law. In an unprecedented move to break the deadlock, Mulroney used a little-known constitutional provision to increase the number of senators by eight temporarily, thus giving the Progressive Conservatives a majority in the upper chamber. In response, the Opposition launched a filibuster and further delayed the legislation. Not only was the tax itself controversial, but what the tax covered also caused anger. The Government defended the tax, arguing it was merely a replacement for the hidden tax on manufacturers that would, in the long run, make Canada more competitive and help balance the books. Despite the opposition, the tax was made law. Aftermath The political ramifications of the GST were severe. It contributed to the Mulroney government becoming one of the least popular in Canadian history. The animosity towards his government played a significant role in the defeat of the 1992 referendum on the Charlottetown Accord, a package of proposed constitutional amendments. A strong Liberal Party majority was elected under the leadership of Jean Chrétien in the 1993 election. The Progressive Conservative Party was nearly destroyed: only two Progressive Conservatives were elected. During the election campaign, Chrétien promised to repeal the GST, which the Liberals had denounced so vociferously while they were the Official Opposition, and replace it with a different tax. Once in office, the Liberals harmonized the GST with the provincial sales taxes in the Atlantic provinces . Other provincial governments, however, refused to go along with this plan and, as a result, the GST remained, unchanged, in most provinces. The decision not to abolish or replace the GST caused great controversy, both within the party and without. Liberal Member of Parliament (MP) John Nunziata voted against the Liberal government's first budget and was expelled from the party. Heritage Minister Sheila Copps, who had personally promised to oppose the tax, resigned and sought re-election. She was re-elected with ease in the subsequent by-election, however, as was the Liberal government in the 1997 election. Instead of repeal, the Chrétien government attempted to restructure the tax and merge it with the provincial sales taxes in each province. Only three provinces agreed, however. Nova Scotia , New Brunswick , and Newfoundland and Labrador now have the 15% Harmonized Sales Tax instead of separate GST and PST. Current situation Until recently the GST has not been much of an issue, other than with the general public who are aware of the absence of a federal sales tax in the United States. Fiscally, the GST has accounted for 15% to 17% of total federal tax revenues each year since 1999. This is slightly greater than the annual amount of the Canada Health and Social Transfer itself. Many also argue that a switch towards heavier consumption taxes on the European model has helped the Canadian economy become more efficient and competitive with lower-priced goods for the international market. It can also be claimed that the transparent nature of the GST has kept Canadians acutely aware of their taxation. This has led to a major change in political culture so that deficit financing is no longer considered an option by the federal and provincial governments. The GST is once again an issue, as the Conservative Party of Canada has pledged to reduce the tax by 1% in the first year and another 1% in the following four years if it is elected on January 23, 2006. In Canada there are three types of sales taxes: provincial sales taxes, the federal GST and the HST in Atlantic Canada Provincial Taxes Every province except Alberta, Newfoundland and Labrador, and two of the Maritimes has a provincial sales tax, or PST. The amount of this tax varies from province to province:
Which items the tax is applied to also varies by province. The Yukon Territory, Northwest Territories and Nunavut do not have any type of regional sales tax.
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