Prepared by Trevor Alleyne.
See Department of Finance, Goods and Services Tax: An Overview, (Ottawa: August 1989).
By 1990, there were 22,000 special provisions and administrative arrangements that applied to the FST, which was collected from a total of only 75,000 firms.
It has been estimated that the FST added roughly 1 percent to the sales price of exports.
The GST uses the invoice-credit method of calculation, in which each individual transaction is accounted for at each stage of the production and distribution process. Since each business collecting the tax also receives input tax credits for the GST it has paid out, the tax is effectively levied on the final consumer.
Goods sold to charities, nonprofit organizations, municipalities, universities, schools, and hospitals are partially tax-exempt, in that suppliers can claim rebates on a portion of the taxes paid on purchased inputs.
Firms with annual taxable sales below $30,000 were exempt from charging the tax; firms with sales less than $200,000 could use the “quick method” of computing net GST remittances, i.e., either 2 1/2 percent or 5 percent of their GST-taxable sales, depending on whether they were goods vendors or service suppliers; firms with taxable sales under $500,000 could use the quick method of calculating their input tax credits, i.e., 7/107 of all GST-taxable purchases, and could file annual GST returns (compared with firms with sales between $500,000 and $6 million that had to file quarterly returns and firms with sales over $6 million that had to file monthly.
The Report of the Standing Committee on Finance that reviewed the GST concluded “It is difficult to call to mind a tax that has been as broadly and deeply resented by Canadians as the GST--nor one where the bitterness has lasted so long. See Standing Committee on Finance, Replacing the GST: Options for Canada (Ottawa: June 1994), p. 13.
R. M. Bird, D. B. Perry, and T. A. Wilson, “Tax Reform in Canada: A Decade of Change and Future Prospects,” Discussion Paper No. 1, International Centre for Tax Studies, University of Toronto (November 1994), p. 32.
In a 1994 survey by KPMG/Peat Marwick Thorne, 49 percent of those surveyed said that they might avoid the GST by having work done for cash; also, 32 percent found GST evasion mildly acceptable, compared to 19 percent for income tax evasion.
A statement by the Tourism Industry Association of Canada to the Finance Committee contained the following summary, “Depending on what you buy, I tax you either 0%, 5%, 7%, 8%, 12%, 15%, 17%, and it may be non-refundable, partially refundable, or totally refundable” (See Standing Committee on Finance, p. 18.)
The Government had initially sought to have the provinces harmonize their taxes with the GST but was unable to achieve a provincial consensus, and opted to proceed unilaterally with the GST.
Bird, et al. (p. 36) criticized the design of the GST as “an uneasy compromise between political expediency and conceptual perfectionism” in which the Government sought to temper popular opposition by exempting a large number of goods and services, but at the same time, endeavored to provide intricate rules outlining the conditions for such exemptions. See also Standing Committee on Finance (p. 16).
See Plamondon & Associates, Inc., GST Compliance Costs for Small Business in Canada: A Study for the Department of Finance. Tax Policy (1994), p. 51. The study also found that almost half of the eligible participants in their survey had not heard of the Quick Method reporting mechanism. Also, survey participants who qualified for the new method of calculating input tax credits (i.e., 7/107 of taxable purchases) expected that this method would reduce their compliance costs by 15-20 percent.
However, compliance costs for small firms in Canada compare very favorably with those for similar-sized firms in New Zealand, whose costs are 1.6 percent of average revenues. See C. Sandiford, and J. Hasseldine, The Compliance Costs of Business Taxes in New Zealand, Institute of Policy Studies, Victoria University of Wellington (1992).
OECD, Taxing Consumption (Paris, 1988)
See Standing Committee on Finance, pp. 12-38. A PET is applied to the difference between income and savings (i.e., “expenditure”) for each individual on a periodic basis. In theory it has the same tax base as a value-added tax like the GST. A BTT is a subtraction-method VAT that would be applied to the difference between business revenues and purchases of business inputs.
See Department of Finance, Sales tax Reform: An Updated Federal Proposal (Ottawa: October 14, 1994).
The Finance Committee estimated that eliminating exemptions would mean that the GST tax rate could be lowered to 5 1/2 percent (instead of the current 7 percent) in order to raise an equivalent amount of revenue.