September 16, 2009

British Columbia industry endorses HST

RICHARD GILBERT

staff writer

The B.C. Construction Association has thrown its weight behind the controversial Harmonized Sales Tax (HST) in British Columbia.

In an open letter to its members, it has outlined the benefits of the tax and explained why the industry should support the new tax system.

The B.C. government plans to harmonize the seven per cent provincial sales tax (PST) with the five per cent federal Goods and Services Tax (GST) effective July 1, 2010.

The HST will create a single combined sales tax rate of 12 per cent.

Even though few details about the new tax have been released, the BCCA said it believes the experiences of other harmonized jurisdictions provide enough information to show how the HST will give BC businesses a competitive advantage.

“B.C. contractors will experience overall tax cost reductions, reduced red tape and administrative costs, and increased competitiveness with contractors inside and outside B.C.,” said Manley McLachlan, president of the BCCA.

“Under an HST system the contractor will claim full input tax credits for all of the HST paid on most of its inputs, including construction materials, tools, capital equipment, excavators, trucks and other large vehicles and on overhead costs such as office supplies, furniture and computers.”

McLachlan argued that suppliers to construction contractors will see costs decline by the amount of unrecoverable PST presently paid.

“As the provincial portion of the HST becomes newly refundable throughout the distribution chain, as well as on selling, purchasing and rental costs, contractors should expect that PST savings realized by these and other suppliers will be passed on through lower prices.”

In terms of impacts on customers of the construction industry, McLachlan said he believes contractors will pass on the PST savings in the direct material used in a specific contract.

He said PST savings realized by contractors on capital, office and other overhead costs will be factored into competitive bidding in future contracts.

“We have had a number of questions directed to us about concerns and they are specifically related to the transition period,” said McLachlan in an interview.

“Members want to know how to word contract language for a project that spans July 1, 2010.”

Another transition issue is inventory with embedded PST.

In response, the BCCA is seeking clarification from the Ministry of Finance to ensure the transition goes as smoothly as possible.

The BCCA will also encourage the ministry to increase the threshold values for New Housing Rebates, by speeding up the phase-in of restricted input tax credits for large businesses.

These are businesses with sales of more than $10 million, that will not be given HST credits for five years, followed by a three year phase-in period on energy, telecommunications, meals and entertainment, as well as small road vehicles.

The B.C. government estimates the HST will remove more than $2 billion in costs for B.C. businesses, which includes an estimated $1.9 billion of sales tax from business inputs.

It is estimated that the construction industry will benefit from the removal of about $880 million in sales tax.

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