Friday, May 27, 2011

GST/PST vs HST Tax Referendum

Interesting. For almost a year we have had the Harmonized Sales Tax (HST) in British Columbia. Now we are asked if we want it, by referendum.
 
I am one of those people who signed the petition to ax the tax. Why would anyone vote for more tax? I figured. We were already paying the Provincial Sales Tax (PST) of seven percent and the Goods and Services Tax (GST) of five percent. We were already paying too much tax, to my way of thinking.
 
Then the tax switch happened, without our consent or consultation. But it was a "smart" move, the BC Liberals insisted.
 
As soon as the HST was implemented I noticed price increases. Some of them huge. Food prices, for one, have increased; especially meat. Also, many of the restaurants we frequented jacked up their prices. And now the tax is across the board, not just on services, but on food items and other products previously sold tax-free.
 
My partner thinks the HST is a "good" tax, in theory. I listened and watched, as he used Chris Thompson's YouTube explanation, in which Economist, Kathryn Kunin reasoned on how "the HST is a very good tax for BC."
 
I listened to the explanation. In theory, the HST would be applied—and refunded to businesses. Oh, great. Another tax that would benefit businesses. As if they don't have enough tax breaks.
 
Quite another story for the consumer.
 
But then, business owners and their families are also consumers, are they not?
 
The HST would be applied at each production step, but it would be refunded to business. And in the end, the consumer would pay less. In theory. Like this:
 
Exp Sub-Tl GST PST HST Total Reality
Meals $40.00 5% 7% $44.80 $44.80
Meals $40.00 12% $44.80 for both
 
Reality: Either tax plan would result in a bill of $44.80 plus tip. Unless the restaurant decided to increase its prices.
 
Groceries are a different story, which I was unable to chart. "Basic" groceries are GST and HST exempt. Raw meat is tax-exempt, but HST is charged on cooked, prepared meats. Using the GST/PST model, a few groceries were charged five percent tax, with no PST. I could see it costs more for groceries using the HST model because twelve percent is now charged for some items I found surprising, such as nut mixes from the bulk bin.
 
Repairs I feared would cost more. So I looked at an example of say, car repairs:
 
Car repairs
Sub-Tl
GST
PST
HST
Total
Compare
PST/GST
Brake Pads 
 100.00 
5%
7%
112.00
Labor 
 60.00
5%
63.00
$175.00
or with HST
Brake Pads 
 100.00 
12%
112.40 
Labor 
 60.00 
12%
 67.20 
 $179.20 
 
In reality, tax charged to all items results in a higher repair bill.
 
But my partner suggested that in BC, with the HST, businesses could reduce their cost and could pass their savings onto their customers. In the ideal world, yes. But, in BC where there are plenty of rich people who will pay whatever price without batting an eyelash…? And plenty of demand!
 
Here is where my partner showed me the YouTube chart from Chris Thompson where PST was applied to at each production step:
 
Step
Cost
Tax
Reality
1
$20.00
$1.40
2
$41.40
$2.90
3
$64.30
$4.50
4
$88.80
$6.21
5
$115.01
$8.05
Final cost to Consumer
$123.06
 
According to the economist, Kathryn Kunin, what this chart means is that at each step the Provincial Sales Tax (PST) is applied to the production process, say a toy:
  • Step 1 harvest raw material, say steel.
    Ca-Ching! Payday for the provincial government.
  • Step 2 Smelting Plant melts down material into workable chunks of product and sells to producer.
    Ca-Ching! Payday for the provincial government.
  • Step 3 Toy company produces toy parts.
    Ca-Ching! Payday for the provincial government.
  • Step 4 Toy factory puts together a toy car.
    Ca-Ching! Payday for the provincial government.
  • Step 5 Sale to consumer.
    Ca-Ching! Payday for the provincial government.
At each of the five production steps leading up to the sale of the toy car, tax is applied and collected by the provincial government. By the time the toy car gets to the consumer's child, tax has been paid five separate times. The PST was "layered in—imbedded" at each production level. Tax upon tax was paid many times before reaching the consumer.
 
We have not even talked about the GST, which was supposed to be applied to goods and services. What does that mean, really, when some stores were charging PST and GST on everything, even items that were GST exempt? We personally took items back to the store several times for reimbursement. On principle.
 
HST was supposed to change all that. In theory.
 
All tax paid would be reimbursed at every transaction in the production process. Here is what I mean by "tax that would again benefit business" rather than consumers. The new "smart" tax, according to Premier Christie Clark. Wow, put the word "smart" in front of something and it automatically means something beneficial…? For whom?
 
The supplier receives a refund on all the HST that was paid through the various levels of production.
 
I'm not sure why it says 7% HST comparison, when the HST is 12%, not 7%. My partner says it is because the 7% is the provincial portion of the tax. Comparing apples to apples. Provincial portion to provincial portion. The additional 5% not mentioned would be over and above what is presented in the chart and would be the federal portion. Okay, technically I could use twelve percent HST, but then I'd have to add the five percent GST to the PST table.
 
Anyway, here is Chris Thompson's chart.
 
7% HST comparison
Step
Cost
Tax
Consumer Cost
1
$20.00
$0.00
2
$40.00
$0.00
3
$60.00
$0.00
4
$80.00
$0.00
5
$100.00
$7.00
Final cost to Consumer
$107.00
 
But, really, it would cost $112.00 because HST is not 7%, but 12%. But, for arguments' sake, let's use the chart that was presented by Chris Thompson.
 
When I listened to the theoretical explanation, I could see that, in theory, HST would be applied once—at the consumer stage. True, it would be applied during each production step, but would be refunded to the producer and the retailer. And in the end, the consumer would pay less sales tax.
 
In theory.
 
But, now we have had the opportunity to test this theory out because the HST is now been implemented since last July. So, how is it working out, BC?
 
Here is what I observed: It appears to be more costly than ever using the HST system. In the ideal world, if the supplier gets the HST back, the production would become cheaper. And naturally a cheaper price would be paid by the consumer. The chart appears deceptive because it looks like no HST was paid. In actuality, the tax was paid, but refunded. Unfortunately, in BC no one can afford to live without raising prices. Lowering retail prices would lower the bottom line. The high cost of living here sends retailers into fear. They fear they can't afford to lower their prices. In fact, with all the GST/PST/HST confusion, many retailers saw this as the ideal time to raise prices to the exorbitant stage. The government would get blamed. And, in reality, that is what happened.
 
What used to cost $100 now costs $120.
 
Car repairs
Sub-Tl
GST
PST
HST
Total
Compare
PST/GST
Brake Pads
 100.00
5%
7%
 112.00
Labor
 60.00
5%
 63.00
 $175.00
or with HST
Brake Pads
120.00
12%
134.40
Labor
 60.00
12%
 67.20
 $201.60
 
Sad, but true.
 
But, businesses are doing well. They have raised their prices and they get back all the HST paid so they are sitting even prettier than they did in the days prior to HST. Another victory for business.
 
The consumer is left with the increased food bill, the increased services bill, etc.
 
A "good" tax for BC businesses indeed. Sadly, it is harsh for the poor people, since business gets their HST back. Do poor people get HST back? Apparently, HST tax credits will be available. Many low-income British Columbians are eligible for federal and provincial tax credits. According to The BC Liberal HST in BC website those with low and modest incomes receive a GST credit of up to $381 annually. Also, the BC HST credit provides up to $230 annually. But, only a portion will be refundable. Unlike the businesses that get 100% HST refunded.
 
Regardless of what BC votors choose, what recourse will BC consumers have? We are free to shop around for the honest businesses that will not gouge their customers with exorbitant price increases. Ask for several price quotations before making a major purchase. My partner and I already do this.
 
We take the time to get to know the product we wish to buy, and buy it from a credible merchant—one with integrity. Honest merchants are still out there, but it takes time to find someone who is honest. Weed the gougers out of our life.
 
Same with government. Democracy is corruptible, since humans are involved who may lean toward greed. Again, weed the corrupt government out of our life.
 
It is like tending a garden. Patience and perseverance will help us weed corruption out of our lives and we will be left with people who are honest and have integrity. It is up to each one to become informed and trust the process. Let's change our world for the better.
 
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that the link is provided, full credit is given to 
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5 comments:

  1. Right on. As consumers we must educate ourselves, exercise our freedom to investigate and choose the "best" value, and the "right" quality, product or service, otherwise businesses will be happy to charge the highest prices the market will bear - and then some, for shoddy stuff. Let's fight back! And as for government taxes, we must demand at election time that political parties show the projected costs of programs/governing, the projected revenues (i.e. tax rates), the net surplus/deficit, the debt levels that are going to result, and the set of assumptions that went into their numbers. Let's stay aware and be informed!!! Let's exercise free will to choose and not be sheeple! Let's demand transparency and integrity from businesses and government!

    ReplyDelete
  2. Thank you for your detailed research and in depth explanation of how this really works.

    ReplyDelete
  3. Thank you to my two anonymous posters! :)

    ReplyDelete
  4. Roslyn Kunin continues to display her profound ignorance with BC PST.

    In the example you gave, there is no BC PST and therefore no "Ca-Ching! Payday for the provincial government" in Steps 1, 2, 3 & 4.

    Kunis and Thompson are either fools for not knowing this or scoundrels for spreading this falsehood.

    I am willing to bet $100 that the claim made by Kunin (and therefore Chris Thompson) in the example given (implying multiple layering and charging of PST) is bogus.

    Any takers?

    Guy Tig
    guytig@gmail.com
    June 3, 2011

    ReplyDelete
  5. Please provide proof. Thanks for your comment.

    ReplyDelete