British Columbia will harmonize its provincial sales tax with the federal GST to create a single 12 per cent sales tax starting in the middle of next year.
The province said Thursday the move will increase the cost of some services that only charge GST in the short term, but believes the move will boost investment and cut costs that could be passed on to consumers in the long term.
"This is the single-biggest thing we can do to improve B.C.'s economy," Premier Gordon Campbell said of the move that will come into effect July 1, 2010.
B.C. is one of the last few provinces to implement the harmonized tax, known as the HST.
Ontario said in March its planning to harmonize its provincial sales tax with the GST for a 13 per cent tax starting Canada Day next year.
Finance Minister Colin Hansen said the province starting working on the move in May, after his Liberal party's re-election.
"Ontario had a head start on this and we felt it was important for B.C. not to lose a competitive advantage," Hansen said in an interview, noting that B.C.'s HST will be the lowest in Canada.
Only Manitoba, Saskatchewan and Prince Edward Island have yet to announce the change. Alberta doesn't have a provincial sales tax.
Quebec, Nova Scotia, New Brunswick and Newfoundland and Labrador harmonized their sales taxes with the GST more than 10 years ago, a move that became politically unpopular when consumers ended up paying more for goods that were previously exempt from the provincial tax.
Hansen acknowledged the prices of some services could go up in the near term.
"Consumers will perceive there to be an increase in the cost of some things," he said.
However, Hansen said the provincial tax is often imbedded in goods, even though consumers can't see it on the sticker price. He said the cost savings businesses will get from this move should be passed on to consumers.
The province estimates the decision will remove over $2 billion in costs from B.C. businesses. For example, it said savings would include about $880 million for the construction industry, $140 million for manufacturing, $210 million for the transportation industry, $140 million for the forestry sector, and $80 million for mining and oil and gas.
The combined tax will also include exemptions, similar to the provincial tax, on items such as gas and diesel fuel, books, children's clothing and shoes, children's car seats, diapers and feminine hygiene products.
The exemptions will come as point-of-sale rebates, the province said.
There will also be a partial rebate of the provincial portion of the single sales tax for new housing. Houses up to $400,000 will bear no more tax than under the current PST system, the province said, while homes above $400,000 will receive a flat rebate of about $20,000.
As well, the federal government will provide British Columbia with $1.6 billion in transitional funding.
Ottawa will also pay for the full cost of administration, saving the province about $30 million annually in administration costs.
