Faced with a fierce backlash over its announcement of a harmonized sales tax, the British Columbia government is looking to cushion the blow for the province's restaurant industry, The Globe and Mail has learned.
Manufacturers and other businesses have applauded the tax, but restaurateurs - along with the real estate industry - have said the tax will hit their profits just as they are struggling to shake off the effects of the recession.
Finance Minister Colin Hansen has asked for proposals on how to ease the transition to the HST for the restaurant industry, following a snap session on Friday - the day after the surprise announcement that B.C. will be launching a harmonized sales tax on July 1, 2010 - involving the minister, members of the business community and Premier Gordon Campbell.
It's not yet clear how much the province is willing to spend on assisting the restaurant industry, nor what form such assistance might take. But the industry says its aim in any discussions is to recoup the full amount that it believes the HST will cost its members in the first year: $500-million.
That represents nearly a third of the $1.6-billion lump sum that Ottawa has given British Columbia to smooth the transition to an integrated provincial and federal sales tax. However, the B.C. government is not setting aside those funds; instead, the cash will be used to fund social spending while the province's coffers recover from the downdraft of the recession.
Mr. Hansen is ruling out only two possibilities. There will be no outright repeal of the move to an HST. And the province is not considering cutting cheques to consumers - unlike Ontario, which is mailing out rebates. The Finance Minister said last year's experience with carbon-tax rebate cheques showed that such a program is "complex" as well as expensive to administer. "We would not be inclined to go down that route again," Mr. Hansen said, "given that experience."
That leaves some sort of direct assistance to the restaurant industry. Mr. Hansen isn't talking specifics at this point, but Ian Tostenson, president and chief executive officer of the British Columbia Restaurant and Foodservices Association, said there are several possibilities, including a holiday on provincial liquor taxes, reduced small-business taxes, or even having the province pay part of companies' municipal tax bills.
There is precedent for such a move. The province already makes payments in lieu of taxes to several municipalities to lighten the tax burden for port operations in the Lower Mainland.
Mr. Tostenson said he will give his proposal to the Finance Ministry within a month, and hopes that Mr. Hansen will be able to announce relief measures when the minister delivers his fiscal update in the first week of September. An announcement when the full budget is tabled next year would still come ahead of the July 1, 2010, implementation of the HST.
Once fully implemented, the HST will reduce sales taxes paid by business by $1.9-billion, and save companies $150-million in administrative costs. For large businesses, the changeover will be gradual, meaning their savings will take longer to fully materialize.
The Finance Ministry is continuing to consult across several industries, although no others have been asked to submit proposals for HST relief. Mr. Hansen said his ministry has already provided assistance to the real estate industry by providing a floating rebate of up to $20,000 against the tax charged on newly constructed homes. And he noted that B.C.'s overall tax rates will still be lower than Ontario's, even after the eastern province enacts tax cuts announced along with the changeover to the HST.
As for the restaurant industry, the move to an HST does have an upside: The tax on liquor purchases will actually fall, from a current combined 15-per-cent rate, to 12 per cent once the new tax takes effect.