The HST: Fun & Profitable

Jeff Green | Jun 24, 2010

Editorial by Jeff Green

There are not many things that people dislike more than paying taxes. We like money, and we don't like to have that money taken away from us. And when we want to buy something, we don't relish the idea that the $100 price tag on that dress, that device, or that auto part, is not a true price. There is $13 in tax (8% PST and 5% GST) added to it.

We've all heard the refrain from the Ontario government telling us that for most products, including $100 dresses, devices and auto parts, nothing will change with the coming of the HST. They presently cost $113 and will continue to cost $113.

The biggest category of change with the HST will be in services. A lot of services have been taxed at 5%, GST only, but they will now be taxed at 13%.

The government says that the HST is not about increasing taxes, it is really about a seamless, fairer, tax system. But they gave us all a one-time bribe this month to cover some of our losses anyway.

Most people don't want to know about all of this, and most people have a nagging suspicion, borne out of past experience, that when any government says anything at all about taxes, it means taxes are going up.

So, who likes this HST?

Business does. Great, you say, we all pay more so some fat cat businesses can save time and money.

But there are more than one kind of businesses.

I'll use the Frontenac News as an example. The HST will change our pricing for ads. Every ad in the newspaper you are now reading is taxed at 5%. The pricing will be the same next week.

But in our July 8 paper, every ad will be taxed at 13%. The bulk of our advertisers, small businesses like ourselves, will indeed be paying 13% in tax on their ads, but every penny of that 13% will be deducted from the tax they submit to the government later on. In accounting terms, it's a simple in and out, or in this case, out and in.

The increase will however, be felt by our social ad customers and many of our classified ad customers.

There are two advantages the HST brings to business. From now on there is only one sales tax form to be filled out and one sales tax to keep track of. More importantly, the HST also means that from now on every bit of tax that we spend on business costs is fully deductible from the taxes we pay.

The HST is a rational, predictable, tax.

For example, if I destroy the laptop I am writing this article on today by spilling coffee on it, I will have to replace it tomorrow because without it we cannot put out next week's paper. And with no paper, there is no ad revenue. And with no ad revenue, we are out of business.

If I have to replace this computer tomorrow, I will pay about $500 for the machine, (which is tax deductible) plus $25 in GST and $40 in PST. The GST will come back to me in 3 months, but the PST is gone. I need to raise $40 in extra ad revenue to cover that $40 PST.

However, if I can manage to wait a week before spilling my coffee, the computer I need to buy on July 2 will no longer end up costing me that $40.

Now, you might say, that's great for you; you've increased your profit by $40, but I'm paying sales tax on items I never paid it on before. Business wins, consumers lose.

There are two responses to this. Firstly, the computer I buy is essential to my business. It should, therefore not be taxed. I am not an end consumer when I buy that computer, I am a business owner buying a tool for my business. Secondly, if the HST is a boon to one business, it is also a boon to that businesses competitor. If one business decides to pocket the extra profit, another one will lower its prices to improve its own market share. The idea is that taxes alone don’t determine pricing; the competitive environment is a counterbalance that provides downward pressure on pricing.

But in the case of fuel, for example, the situation is not so clear-cut.

Gasoline and diesel for vehicles are not subject to PST, so the HST will apparently mean an increase of 8% in the price at the pumps. The problem is that there is already a substantial provincial tax on fuel, about 15% (based on the pie chart that you find on all the gas pumps at the stations) so the province is now adding a new tax on top. They are taxing the tax.

This, it seems to me, is an unfair extension of the HST.

Fuel prices rise and fall based on logic we don't understand, so we cannot count on the marketplace to correct for this one.

So, in the end, to me the HST is a good idea, and its coming was inevitable. All modern economies are moving towards value added taxes, which among other things make products for export more competitive on the world market.

But as is always the case, it is in the details of implementation that the mathematicians who run the finance department are ensuring that the government ends up with more, not less, revenue.

And we all know who pays for that.