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Tuesday, August 11, 2009

Harmony in Ontario Tax System?

The HST – Harmonized Sales Tax – will become a way of life in Ontario. The new 13 percent tax, slated to begin July 2010, will harmonize the federal and provincial sales taxes. Provincial legislators claim that the HST is good for the province. It will ultimately save businesses money and these savings can be passed on to the consumer. Not everyone, though, is as optimistic as the province's leaders.

Some analysts and tax specialists predict that the HST will create an underground economy. It will negatively affect many small and medium-sized firms that provide services and were previously exempt from the provincial sales tax. This will force these businesses offshore or to other provincial jurisdictions that don't charge PST on services. Ontario will lose the competitive advantage that it had.

Not all analysts agree with this doomsday outlook, though. Citing the Atlantic Provinces that harmonized their sales taxes in 1997, no great revolution took place. There was no tremendous increase in business outsourcing their work, nor did businesses leave home to seek better tax systems across the nation.

Ontario legislators predict that, due to the HST, companies will save $500-million in tax compliance. The new tax will also improve cost efficiencies in government. The province does acknowledge that business will have to change their accounting and point-of-sale systems to accommodate the new tax. However, the province has set up a one-time $400-million fund that will provide tax credits to small businesses to offset the costs of these changes.

One final skeptical note that opponents point out. Previously, companies were compensated for collecting retail sales taxes. Under the new HST, businesses will provide the collection services for the province free of charge.

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