Proposed legislation regarding Canada's harmonized sales tax: January 20, 1997.

On January 20, 1997, Tax Executives Institute presented the following testimony to the House of Commons Standing Committee on Finance concerning the proposed legislation regarding Canada's harmonized sales tax. The testimony was presented by Pierre M. Bocti of Hewlett-Packard (Canada) Ltd., chair of TEI's Canadian Commodity Tax Committee. The following members of the committee contributed materially to the preparation of the testimony: Munir A. Suleman of Bank of Nova Scotia and Ricardo N. Horton of General Electric Canada.

Good Morning. My name is Pierre Bocti. I am Director of Tax for Hewlett-Packard (Canada) Ltd. I am here today on behalf of Tax Executives Institute in my capacity as Chair of the Canadian Commodity Tax Committee for the Institute. The Commodity Tax Committee is responsible for monitoring developments in consumption-based taxes such as the GST and sales taxes. With me today is Jeff Rasmussen, Assistant Tax Counsel with TEI's staff in Washington, D.C.

Background

Tax Executives Institute is the principal association of corporate tax executives in North America who are responsible for the tax affairs of the businesses by which they are employed. Our nearly 5,000 members represent more than 2,700 of the leading corporations in Canada and the United States. TEI represents a broad cross-section of the business community and is dedicated to the development and effective implementation of sound tax policy and to reducing the cost and burden of administration and compliance. Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver. In addition to being chair of the Institute's Commodity Tax Committee, I am also the current President of the Toronto Chapter. The remarks that follow, and those in our written submissions to the Minister, reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency.

General

In general, TEI commends the government for taking the initiative to harmonize the provincial retail sales taxes with the GST. When fully implemented, the benefit of a single national sales tax regime with a unified administration coordinated among the provincial and federal governments will, we believe, prove substantial for taxpayers and the government alike. Nonetheless, many substantial and thorny implementation and transition issues must be resolved to achieve a fully harmonized system. Some of those issues will be fleshed out through panels such as this, but some issues ultimately may be deferred to the National and Provincial Revenue Officials pending further consultations with taxpayers.

We are pleased to say that Bill C-70, introduced on November 29, 1996, addressed many of the concerns identified in TEI's previous submissions and discussions with the Department of Finance and Revenue Canada on the GST Technical Bill. Some issues remain, however. I will touch briefly on several concerns and then conclude.

Specific Issues

1. Limited Geographic Implementation. We recognize that complex political, constitutional, legal, and budgetary constraints impelled the decision to limit the introduction of a harmonized sales tax regime to the maritime provinces. That decision, however, will create enormous administrative burdens and complexity for taxpayers to comply with the so-called "place of supply" rules. Those rules determine which tax rate to apply to what tax base on transactions that cross provincial and national boundaries. In other words, the supplier is in, or deemed to be in, one jurisdiction, while the ultimate purchaser is in, or is deemed to be in, another. The place of supply rules are particularly difficult to apply in respect of services. To limit the compliance burden involved in determining the place of supply, a single, national sales tax with a uniform tax base, uniformly administered, is necessary. To that end TEI has submitted letters to the provincial ministers of the non-participating provinces urging them to participate in harmonization. Before moving forward with Bill C-70, however, we urge the government to reconsider the place of supply rules very carefully.

2. Tax Included Pricing. Businesses selling products at the retail level must, under the bill, implement tax-included pricing. Quite apart from hiding the cost of government services, that seemingly simple rule imposes tremendous compliance burdens and administrative costs on retail businesses, especially in the transition from the current systems to a harmonized system. We urge the government to weigh those costs and concerns carefully. At a minimum, the government should consider deferring the implementation of tax-included pricing to December 31, 1997, in order to afford taxpayers and the government time for consultations.

3. Financial Institutions. Since the inception of the GST, the rules affecting financial institutions have been complex. TEI members are still studying the rules set forth in the November 29,1996, bill and so we do not have extensive comments this morning. We urge the government to consider the detailed submissions that we know will be made by many taxpayers and professional organizations. We must point out, however, that financial institutions have been singled out among taxpayers for a discriminatory two-year limitation period for claiming input tax credits whereas the government may assess (or deny input credits) for up to four years. We urge the Members of Parliament to reconsider this provision as unsound tax policy.

Conclusion

Other issues were addressed in TEI's written submission on the April 23, 1996, GST Technical Bill. Time constraints prevent me from raising those issues except to say that our discussions with the Departments of Finance and Revenue have been productive and we hope that they will continue to be so. In conclusion, on behalf of TEI I wish to express my appreciation for the opportunity to participate in the Roundtable on Bill C-70 and I shall attempt to respond to your questions.