VANCOUVER, B.C., Oct. 17,2012/ Troy Media/ – Last month, British
Columbia’s Expert Panel on Business Taxation delivered its much
anticipated final report (at least among us policy wonks).
Unfortunately, the report garnered little media attention and failed to
spark much debate about B.C.’s tax competitiveness.
The Expert Panel was appointed early this year by then-Finance
Minister Kevin Falcon; it was made up of a cross-section of people from
business, academia, and government to provide recommendations on how
B.C.’s business taxes could be made more competitive given the return of
the PST in 2013.
The Expert Panel was clear on two important issues in its final report.
First, B.C.’s tax competiveness matters: “A competitive tax system
encourages businesses to locate or expand their operations in B.C.
which, in turn, creates more jobs for British Columbians. A competitive
tax system helps ensure that our standard of living keeps pace with the
rest of Canada and raises more revenue to fund public services”
And second: “The reintroduction of the PST on April 1, 2013 will
impose a significant cost on B.C. businesses that wish to modernize
their operations and preserve and create jobs in our province.”
Recall that the HST’s greatest benefit is the sales tax exemption of
all inputs used by businesses to create products and services. A return
to the PST will once again mean that items purchased by businesses to
produce those goods and services will be subject to sales tax. The cost
of investing in machinery, equipment, and new technologies will
increase, making it more expensive for B.C. businesses to expand,
upgrade, and innovate.
At minimum, there should be a complete sales tax exemption for
businesses purchasing machinery, equipment, and technology when the
province returns to the PST. Fortunately, the Expert Panel agrees and
made its key recommendation to introduce a refundable investment tax
credit equal to the PST paid on machinery and equipment, including
computers and software (the Panel made a total of 38 recommendations,
not all of with which we agree).
However, neither Premier Christy Clark nor Opposition leader Adrian
Dix has shown any public support for the Expert Panel’s recommendation
nor have they talked about the importance of mitigating the damaging
impact of the return to the PST.
Rather, earlier this year Premier Clark’s government proposed a host
of new tax increases in its 2012 budget, including a reduction in the
amount of income British Columbians can earn tax free, increased MSP
premiums, reneging on an earlier promise to eliminate the small business
tax rate, higher tobacco taxes, and a “provisional” one percentage
point increase to the general corporate income tax rate in 2014/15.
As for Dix, he recently indicated that, if elected premier, his
government would significantly raise business taxes and reinstate a
capital tax on financial institutions.
Thus we have tax policies proposed by both the Liberal and NDP
parties that would be extremely damaging to B.C’s attractiveness for
business development.
To encourage businesses to invest and expand their operations in
B.C., the focus should be on making B.C. the most investment-friendly
jurisdiction in Canada. To that end, the government should put forth a
tax plan to reduce the crushing blow to B.C.’s competitiveness in light
of the PST’s rebirth.
Niels Veldhuis is Vice President, Research at the Fraser
Institute. This commentary was co-authored by Charles Lammam associate
director of budget and tax policy at the Fraser Institute.
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