British Columbia to cut controversial sales tax

Wed May 25, 2011 5:01pm EDT
 
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VANCOUVER (Reuters) - British Columbia's provincial government promised on Wednesday to reduce a controversial sales tax if voters do not repeal the measure altogether this summer.

The government said it will reduce the Harmonized Sales Tax to 10 percent from 12 percent by 2014, with the revenue replaced by increasing corporate taxes to 12 percent from 10 percent and postponing a planned cut in small business taxes.

The changes would not delay the province's plan to return to a balanced budget by the 2013-14 fiscal year, Finance Minister Kevin Falcon said.

The government said it decided to cut the tax after an independent review found families were paying an average of C$350 a year more than they were under the province's former sales tax system.

British Columbia stuck a deal with the Conservative federal government in 2009 to merge the province's 7 percent sales tax with the 5 percent federal Goods and Services Tax (GST) following a similar move by Ontario.

Although the total rate remained 12 percent, the surprise decision angered many residents because it extended the tax to items such as restaurant meals, which had not been subject to the province's sales tax.

HST supporters said the combined tax allowed businesses to reduce their costs and remain competitive with businesses in provinces that had already harmonized sales taxes.

Business groups said they supported the government's decision to cut the HST, but HST opponents said the announcement was an admission that the new tax was a failure and costing consumers too much.

The province will hold a referendum in July that asks voters if they want to repeal the HST and return to the former system of separate federal and provincial taxes. Tax opponents collected enough signatures to force the mail-in vote.

The government has warned that repealing the tax would require British Columbia to repay C$1.6 billion ($1.6 billion) that the federal government gave it to accept the deal.

(Reporting Allan Dowd, editing by Peter Galloway)