Finance Committee on June 14th, 2006

[The Chair, Conservative, Brian Pallister]

Welcome, committee members. Welcome, guests.

Pursuant to Standing Order 108(2) and section 89 of the Canada Revenue Agency Act, statutory review of the act will continue.

Our witnesses from 3:30 until 4:30 are from the Canadian Federation of Independent Business. I understand Mr. Garth Whyte, executive vice-president, will begin with a brief presentation, and then we'll have the remainder of our time for some healthy exchange.

Proceed, Mr. Whyte, and welcome.

[Garth Whyte, Executive Vice-President, Canadian Federation of Independent Business]

Thank you, Mr. Chair.

To my right is my colleague Corinne Pohlmann. She's the director of national affairs. To my left is Lucie Charron, who is our economist. They've both done a lot of work with the revenue agency, which we'll talk about.

We've been waiting 18 months to give this presentation. We were only told on Thursday, so we don't have the details we would like to have in terms of current examples, but we do have this report, which I hope has been distributed. It's the Canada Revenue Agency review, five years after a small-business audit of the CRA.

As background first, the revenue agency hits every one of our 105,000 members. It hits virtually every business, so it's a very important agency for us. What we've done with this report we did in 2001 and again in September 2004, and we audited the revenue agency at their request.

They asked us to do this second report, and as you can see in figure 1 on page 2, we ask if there has been a change in level of service during the past five years of the establishment of the agency. As you can see, there has been some improvement, with 11% saying it's better, 62% saying it's the same, 13% saying it's worse, and 14% saying they don't know. That's better than the 2001 survey. In the highlights in the grey area on the front page, during the past five years the CRA has improved in four areas: accessibility of staff, knowledge of staff, promptness of replies, and speed in processing refunds. The performance during the past five years has declined in four other areas: availability of information, simplicity of information, willingness to provide interpretation, and levels of penalties. With this report, we not only asked our members; we did a survey of tax service providers. They're the ones who work with CRA on a regular basis.

If you turn to page 4, you can see the service quality indicators we've picked, and there were 17 of them. At the time it was CCRA, so three of them were with customs, so we can ignore that. The others were about staff--accessibility, knowledge of staff, promptness of reply, treatment by staff, information and forms, availability of information, readability, simplicity, and access to information on the website. The third category is interpretation of rulings, and the fourth is refund and penalties. On page 5 we talk about staff, and as you can see, there are business owners' responses and tax practitioners' responses, but the same categories are identified--accessibility of staff was identified as the biggest concern, with 39% saying it's poor, 12% saying good. Promptness of replies: a third of our members said this was poor and 13% said it was good, but if you look at tax practitioners, one out of two tax practitioners said promptness of replies was poor. Forty-three percent of tax practitioners said accessibility of staff was poor. And this is one we think the agency should work on: if you look at readability and simplicity of information, 42% said it was poor, 6% said it was good, and then the tax practitioners--the experts--almost 40% said it was poor, and 8% said it was good. Availability of information: one out of four tax practitioners said it was poor.

If you go to the next page, we talk about rulings, and this is another area where people identified. Again, 60% of tax practitioners said speed of rulings and interpretations was poor; 3% said it was good. Willingness to provide interpretations: 45% said poor. If you look at the penalties and refunds, the refund process has improved, but levels of penalties both tax practitioners and business owners say is poor, 70% saying levels of penalties have increased.

Page 7 highlights this grey area, changes between 2001 and 2004. We rank these categories and show where they've worsened and where they've improved. Again, availability of information has worsened, both from the business owners' perspective and the tax practitioners' perspective. Readability and simplicity of information has worsened, both from the business owners' and tax practitioners' perspective.

I'm galloping through this, but I also want to talk about the auditor performance on page 8. It has improved, and I want to highlight that. People say they're more knowledgeable, their professionalism is good, and their courtesy has improved. But the time spent complying with audits has increased from 6.6 days to almost 9 days.

Finally, the big one I want to talk about is compliance costs. The overwhelming amount of paperwork involved in complying with a tax system is the number one factor contributing to compliance burden, as identified both by tax practitioners and business owners. The average cost for tax compliance for a small firm is $3,000 per employee.

Mr. Chair, the final gem I want to throw in here is figure 14. If you can see figure 14, you say that 71% of tax practitioners said that compliance costs on small firms have increased during the past five years. One of the mandates of CRA is to improve service and compliance costs.

The final issue is proxy measurement. We've presented this to the agency and the commissioner. Proxy measurement looks at the tax collection cost, the cost per dollar in tax collected, and you can see that the costs are actually a little higher than they were before the agency. It's about two cents per dollar collected. In Australia, it's one cent for every dollar in taxes collected.

As far as recommendations—and I know that the commissioner presented yesterday, and he listed his three priorities, but one of them wasn't service—we think that CRA should make service a big priority. We think that CRA should make reduction of compliance costs a top priority. They should measure the compliance and paperwork burdens and set real targets, and report to this committee annually on their progress. We think they should set customer service standards, and the code of conduct should be improved, as they did in B.C.

We were going to hand it out, but we didn't have the copy translated, although it will be translated for you. But there are things here, which I think could be enhanced, that the department can do. It's really an update of the fairness in clients rights code. We think there should be a more proactive approach to communicating tax changes.

We'd like to talk about it at questions, but we did work very well with the agency on the GST and what's required to reduce the rate in July. We had to do it with the agency, and we got it out to our membership. We think there's something that can be done there.

Our goal is to comply with the tax code. We think it plays a major role in our economic development and small-business growth. We think it has improved, but there's more that can be done.

Thank you, Mr. Chair.

[The Chair, Conservative, Brian Pallister]

Thank you. You covered a lot of ground in a very efficient manner, and the committee appreciates that.

We'll lead off with Mr. St-Cyr.

[Garth Turner, Conservative, Halton, ON]

Point of order. Yes, thank you.

I was wondering, Mr. Chairman, if my francophone colleagues agree to the distribution of the literature that was brought by the CFIB, by the witness, even though it has not been translated. It's their choice.

[The Chair, Conservative, Brian Pallister]

I'll ask, Mr. St-Cyr, if you'd like to respond to that request.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Chairman, a motion was tabled, at the beginning of the session, stating that all documents to be distributed to this committee must be in both official languages. To my knowledge, this motion was adopted unanimously.

[The Chair, Conservative, Brian Pallister]

Okay, I don't sense there is approval for that. The document will be distributed as soon as the translation is available.

Mr. Savage, you have seven minutes. Please begin.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Thank you, Chair.

If I have any time left over, I think Mr. Pacetti will fill in. I'm usually on the short end of the time-sharing, but I'm going first today.

Welcome to our witnesses, and thank you for coming.

I'd like to ask a little about how ready your clients are for the GST and HST rate reduction. Have you surveyed your customers about how ready they are? What kinds of responses have you had?

[Garth Whyte]

Yes, we have. We've done a lot leading up, and we could walk through it. Prior to the announcement we surveyed our members and asked them what it would take to do the changes. It wasn't just updating the cash register; it was updating their websites—there was a list of things we can distribute—accounts payables, tax-inclusive pricing, etc., as well as what you do with catalogues, tax credits, and so on. So there are a lot of things that need to be done.

We did a survey to find out what they did prior to the announcement of the budget and if they would need more time. On Wednesday afternoon we did a quick survey of a major sample of our members, and we had 5,000 responses in 12 hours. We had 8,000 in five days. We put it out four days before the budget, and we gave this report, saying here are the concerns we have and this is why we need more time.

Then there was more time given. We sat back and said we had better inform our members of what they need to do. Lucie did a lot of this work.

You should talk about what you did there. You talked to the Department of Finance.

[Lucie Charron, Policy Analyst, Canadian Federation of Independent Business]

Basically, we consulted with some accountants as well as members about what would need to be done to implement the GST rate reduction. On this GST checklist, you see things that should be done, but we've also highlighted the GST and HST implementation rules that we found in the budget document. We put them on our checklist. After that was done, we consulted with the finance department as well as with the CRA about whether that would be appropriate. We gave them a deadline of about two days to get back to us, and both departments got back to us quite quickly, saying that they approved it. In a sense, they put it through different departments to have it looked at, and that's what came of it.

Also, we distributed it to all our membership to make sure they are aware of the GST rate reduction and also so that they know what they should be considering when it comes time for implementation.

[Garth Whyte]

Thanks, Lucie.

That's not fully answering your question.

We've put it out. It's on the website. There's a hotline to call. It was a good example of what needs to be done to put out information quickly. It wasn't on the website. It was very hard to find on the CRA website right away. We simplified it.

Next we're going to survey our membership and find out how it went. But right now, we're not hearing too much. I think people are getting ready to do it. It's a tough time to do it--on July 1--but I think they're ready.

I also want to highlight how great the department was, but more importantly, it's a case study in which the finance department has done the policy and has then told CRA to implement it. Often we want both parties at the table, because when you have a policy, it's terrible if it's implemented poorly. We may support reducing the rate by 1%, but if you don't know how to do it or you don't have the time to do it, it could be a disaster. So this is a great example of all three parties working.

Finally, we asked our members where they go for information and advice important to their business. “Government” was just above “other” for where they would go for information and advice. They go to their suppliers, their advisers, and their trade associations. As a matter of fact, the smaller accountants are using this and distributing it to their clients.

Anyway, it was a case study. We're going to follow up on it in terms of how prepared they are.

We also put it out in the media. We had about 150 media hits. It went to all the rural newspapers to inform them of what was involved.

We think they're prepared. We're not hearing any bad news about it.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

What is your total membership?

[Garth Whyte]

We have 105,000 business owners.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

So you heard from 8,000 out of 105,000 in response...?

[Garth Whyte]

We did a quick e-mail. We cut if off. We're still getting them in.

We also do 4,500 small business visits every week. And every week, in those 4,500 visits, we're handing this out to opinion leaders in their communities, saying “Get this out. Tell people. This is what you need to do.”

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

But is it your sense that most of your members are okay with this, that they're ready for this? Did you say you're going to do a survey now?

[Garth Whyte]

Now you're going to make me lie or bluff. I don't know what to say.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

That never happens around here.

[Garth Whyte]

We think they're as ready as possible.

We're finding that there could be a great announcement.... It is like when we simplified the input tax credit for small firms. It was real money in their pockets, but it took up to two years for some firms to get it. They'll be slow.

Right now, we think they're as ready as they're going to be. We've done everything possible to have them informed.

On this side, at least on the retail side--and we have 30,000 retailers--the customers are going to make sure they know about it.

It's there. We've led them to the water. Whether they drink or not is up to them.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

In terms of being ready, have you lobbied CRA on behalf of CFIB members for any specific concessions or contributions towards making these conversions in order to be ready for the reduction? What role have you played in terms of helping to implement this for the members you have?

[Garth Whyte]

First, we pushed the government for a transitional time, which we got. Second, we did ask for some adjustment costs, because the average cost is going to about $570 per firm. So those two the finance department would have to deal with. We got one out of two.

The third one, on input tax credits, the department could do something about. There's going to be a blending of input tax credits, some at 7%, some at 6%. Hopefully, there'll be some forgiveness over time, or there may be some compliance issues they could work with, which we have mentioned to the department.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Thank you.

I'd like to give my last five seconds to--

[The Chair, Conservative, Brian Pallister]

No, sorry, Mr. Savage, but thank you very much for your questions.

The next committee member to have the floor will be Mr. Bouchard.

You have seven minutes, please, Mr. Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chairman.

Thank you for your presentation.

I am referring to page 7 of your document. You said that the agency had failed in four categories and that it had made progress in four others. However, in the column “Business Owners”, I see that one thing has improved and six things have gotten worse. And then, in the “Tax Practitioners” column, I see that four things have improved and five things have gotten worse.

Of course, at first sight, I would say that things are getting worse in the agency. If we look at all the results on page 7, can you tell us if the result is neutral, positive or negative?

[Garth Whyte]

First off, six of the worst categories are under customs now—and we have another presentation to make, because there is now a customs agency that we have to work with. So you can see that under category 5, there are six.... It used to be the Canada Customs and Revenue Agency, but now it's the Canada Revenue Agency. So when we did it, we thought customs would still be there, and they weren't, so there are six that are gone.

Second, even if they've improved, they're still not very good. For example, let's say accessibility of staff has improved; if you go to page 5, the accessibility of staff to tax practitioners has improved, but 43% still say it's poor, whereas only 12% say it's good.

So the answer is that the overall level of service—on page 3, figure 2—has improved. The survey also asked about the revenue agency's level of service during the past two to five years, and you can see that 2004 survey shows that the service level has improved over 2001. So there is some improvement happening, generally. Even in figure 1, if you look again at the change in level of service, there is slight improvement from 2001. It doesn't mean, though, there aren't some major things that need to be fixed by category, such as readability and accessibility of information, the promise of replies, and penalties.... So it's a mixed grade. I would give it a C minus, if I were to give it a ranking. But I would think that in certain categories there are F's, and in other categories there are some B's.