TORONTO – The Ontario Chamber of Commerce called on the provincial government Thursday to harmonize its sales tax with the federal goods and services tax, a move the business lobby said would save companies about $100 million a year.
The chamber released what it called the most comprehensive report yet detailing the benefits of merging Ontario’s eight per cent sales tax with the five per cent GST.
Harmonizing the two taxes would cut red tape and help lower costs for businesses, leading to a much stronger economy overall, said chamber president and CEO Len Crispino.
“Businesses will benefit from reduced compliance and administration costs when they have one tax, not two taxes, to deal with,” Crispino said.
“The report clearly shows – both in the short-and longer-term in particular – the economy will be much better off.”
The chamber acknowledged that some prices could rise in the short-term, but said overall consumers would be better off if the two taxes were merged because of the strengthened economy.
“Households (would be) able to purchase more goods and services, even in the short run, and certainly in the long run, with this type of reform,” said report author Robin Somerville.
“We’d have a more competitive economy, which is able to pay them a higher wage because these people are more productive.”
Businesses currently pay both PST and GST on equipment and machinery as well as on daily operating costs such as electricity, paper and ink toner, but can only claim a tax credit for the GST.
“There’ll be far greater deductions for business inputs,” Crispino said.
“Our businesses will be much more productive.”
Quebec, New Brunswick, Nova Scotia, and Newfoundland and Labrador have already harmonized their provincial sales taxes with the GST, and it’s crucial that Ontario follow suit to attract new business investment, said Derek Burleton, associate vice-president at TD Financial Group.
“If Ontario were to harmonize its sales tax, the effective tax rate on investment would fall by about one-third,” Burleton said.
“(That one-third cut) is purely the extent at which sales taxes impact the corporate cost structure.”
Ontario Finance Minister Dwight Duncan was unavailable for comment Thursday, but said Wednesday that he wouldn’t follow the chamber’s advice and open negotiations with Ottawa on tax harmonization.
“In my pre-budget consultations I heard from a number of chamber members who don’t support (harmonization),” Duncan said.
“I think we want to listen to what they have to say and take it into account as we move forward in these challenging times.”
Ontario has repeatedly rejected all previous calls to harmonize the PST with the GST, saying it would add taxes to items that are currently exempt from the PST, such as children’s clothes, books and feminine hygiene products.
Crispino said the various models for harmonization proposed by the chamber would still give Ontario room to address those concerns.
“I think it’s really important to understand the government has options at its disposal in terms of where there are exemptions,” he said.
A 2003 report by the C.D. Howe Institute warned that sales-tax harmonization could cost the Ontario government $900 million to $1.8 billion in lost revenue, but noted other provinces had negotiated deals with Ottawa to offset their drop in revenues.