Finance Committee on May 8th, 2017

[The Chair, Liberal, Wayne Easter]

Mr. Greene, go ahead.

[James Greene]

Thank you, Mr. Chair.

I would say there is a tradition of budget secrecy, of course, relating to the preparation of budget measures, and that's considered to be most acute with respect to tax measures. The government obviously has to be concerned about speculation concerning potential tax measures, particularly those that would affect companies, financial markets, and so on. That means there are limitations on the extent to which the department can signal to stakeholders potential tax changes.

But I would say that there were representations made by the sector on its own initiative. As a result, the government did hear from the insurance sector about this measure prior to the budget and certainly took those representations into account.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

I will now turn to another topic: excise duties. Maybe it will be the last time, Mr. Coulombe.

To go back to something mentioned earlier, I would like to point out that one of the main concerns I have been given is the increase in excise rates and the subsequent indexation based on the principle of escalating tax. This relates to the WTO's rules on international trade.

We are told that French wine producers who export their products to Canada—which are also excellent—have tolerated until now that 100% Canadian wines are exempt from excise duty. If excise duty rates increase and there is an escalation indexation, this exemption may not be tolerated by our economic partners in the wine industry.

Have you assessed the risk that the exemption for 100% Canadian wines would be challenged in the WTO as a result of this increase in excise duty rates and their subsequent indexation? Producers of French wines that export their products to Canada will experience this escalation in excise duty rates, while the exemption for Canadian wines will give Canadian wine producers an advantage over time. Have you considered the risk of this being challenged before the WTO?

[Gervais Coulombe]

Thank you for the question.

First of all, I must say that I am not a specialist in international trade law. There is another branch in the Department of Finance that deals specifically with these issues. Perhaps they could send a more specific written response to the committee. I do not want to interfere with the trade policy of my country by making a statement on subjects that I am not capable to speak to.

That being said, there is a little technical point that I can raise. The automatic increases to keep inflation under control in future years are inherently the same as the 2% increase proposed in this budget. How would one element be more problematic than the other when it comes to trade policy? That remains a question mark in my mind.

As part of the overall analysis of the measure, the fact that it is relatively small has clearly been taken into account. As I said earlier in my presentation, we are talking about 5¢ per case of 24 bottles of beer, 1¢ per bottle of wine and 7¢ per bottle of 750 millilitres of 40% alcohol spirits. These are relatively insignificant measures, even if inflation were to persist for several years.

I should add that, meanwhile, provinces often seek their money by imposing profit margins expressed as a percentage. They increase automatically, without adjusting to inflation.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

We are talking about a few cents, but this is in addition to what is already levied on excise duties.

I have a document from Beer Canada. You pointed out today that excise taxes have not increased since the mid-1980s, at least not substantially. Yet the people from Beer Canada say that, in fact, excise duties increased by 44% in 1991 and by 11.6% in 2006. I imagine they are basing that on something.

Do you want to correct your assertion that there has been no increase since the 1980s?

[Gervais Coulombe]

I said that there had been no actual increase—and I hope the word was pronounced properly in English—since the mid-1980s. Of course, because of the introduction of the goods and services tax in 1991 and the first reduction in the tax in 2006, various taxes and duties had to be adjusted.

What I understand about the political decisions of the governments of the day is that, overall, the tax burden on products remained the same. In other words, a tax was removed to add another tax. I don't think we need to go through all of the technical details, because they aren't being studied in this bill. In any event, my previous assertion that actual rates have not been increased since the mid-1980s is still true, notwithstanding certain statements that have not been made to me and that I do not have in front of me.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Perfect. That's a helpful clarification.

With respect to the public transit tax credit, it is estimated that removing it will generate revenues of $225 million a year by 2021-2022. So there is less money in the pockets of Canadians who use public transit. It is estimated that 1.3 million taxpayers had access to this tax credit. Considering these numbers of 1.3 million people and $225 million, we're talking about an average of $154 per public transit user.

You said it wasn't an effective tax credit. To the extent that you estimate that 1.3 million people and $225 million are not sufficient figures, could you tell me what figures would have allowed us to say that this was an effective tax credit?

[Pierre LeBlanc]

Thank you for your question.

As I said, the purpose of the measure was to encourage increased public transit use. It must be said that it isn't just public transit users who have taken advantage of this tax credit. All in all, the number of users hasn't changed much during these years.

I talked about more in-depth studies. I'll be able to send our summary of these studies to the committee and the chair.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

That was my second question. In any case, it was asked earlier. Now, you referred to independent studies that showed that the measure had a limited effect. Obviously, the committee would be very happy to have access to these studies so it could make an informed decision when it is called upon to come to a decision on this measure.

I would now like to move on to taxis.

Mr. Mercille, you said it was difficult to collect taxes. This applies in practice to the taxation of foreign companies that trade in our territory but have their headquarters in another country.

Can you tell us about the difficulty and the particularities of these companies, be they taxis or carpooling services? Why is it difficult to collect sales taxes, in this case, from foreign companies that trade in Canada?

[Pierre Mercille]

I'm not going to talk about taxes. Perhaps my colleagues will want to add a few words on this.

The difficulty with the goods and services tax is that the company is not physically present in this country. The company is, in fact, a website that people have access to. I do not know where this website is hosted. The provision in question refers to any entity that carries out business in Canada. It's ambiguous. It is difficult to determine whether these companies that do business on the Internet actually do business in Canada and, as such, can be considered companies operating in Canada.

Even if we were telling foreign companies that they are providing services to certain people in Canada on the Internet and, therefore, they have to pay taxes to us, but they don't, we would have no mechanism to get that money. We can't force foreign companies to pay Canadian taxes if those companies are not physically present in Canada.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

But they're still providing services in Canada, aren't they?

[Pierre Mercille]

I couldn't say whether the services are available in Canada or not. People use the Internet to get a service, but the Internet is a tool used all over the world. Servers can be in any country.

The situation may have changed. In any event, it is up to the Canada Revenue Agency to determine whether, in its interpretation of the act, the company is operating in Canada. To do so, it will be based on transaction facts. As for me, I can't really comment on that.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

So what you're saying is that, whether we adopt this measure in the bill that we are studying today or not, a person whose business is registered outside Canada could get out of it and not pay taxes on goods and services, even if the business provides services in Canada. I'm afraid that we'll do all this work for nothing, since there is an easy way out of this obligation.

[Pierre Mercille]

No. In fact, in the taxi industry and the carpooling industry, people provide services and are present in Canada. These are self-employed drivers who drive their cars and offer a carpooling service. These people are in Canada. We ask them to register, just as we ask conventional taxi drivers to register. As soon as they are registered, they must charge customers the tax.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Drivers must complete the registration form and remit the goods and services taxes annually. The company that oversees everything through its website isn't necessarily who will deal with that. All drivers must register themselves.

[Pierre Mercille]

The same model exists for independent taxi drivers.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

That seemed to create a definition problem earlier. We can probably talk about it at some length, but it is worrying that even if legislation is passed to force drivers to pay their taxes on goods and services, it seems so simple to avoid that obligation.

I think we've covered the issue for now.

I have another question on excise duties for Mr. Coulombe.

I know it's not part of the short-term economic outlook, according to the experts, but if there were negative inflation, would the excise rates be adjusted downwards as well?

[Gervais Coulombe]

Thank you for the question.

As I said earlier, for the adjustment mechanism, we used the model that was applied for tobacco and the income tax system. Negative adjustments are therefore impossible. The inflation mechanism proposed in the bill only allows the implementation of positive adjustments.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Dusseault.

Mr. Liepert, and then Mr. Deltell. I think that will wrap it up.

Mr. Liepert.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I just have a couple of brief questions.

I want to follow up on the transit pass. I was glad to see you providing information to the committee in response to Ms. O'Connell's question.

I know you mentioned that the tax credit was brought in for a carbon reason, but it would also seem to me that this tax would be highly applicable to that loveable group the Liberals like to call “middle class and those working hard to join it”.

Now, you in the finance department wouldn't really even have to do a study on it, but could just compile the numbers of those who actually claimed the tax credit versus how much they earned. In a general sense, is it those who are working hard to join the middle class who mostly benefited from the transit tax credit? Is it those in the upper one per cent who file taxes? That wouldn't need a study; that's information you should have.

I would like to know from your information who actually claimed that credit, and what percentage of tax filers were in each category. If you want to find it and get back to us, that would be fine.

[Pierre LeBlanc]

We can follow up with exact numbers.

What I can say now is that I think it's fairly evenly distributed across the population, when you think in terms of who takes public transit. That would seem reasonable. There are a good number of individuals with low incomes who claimed the credit but who didn't benefit, because it was a non-refundable credit and they didn't have any tax liability to offset.

I'd make those general points now, and we'll provide specific numbers to the committee.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Those really wouldn't be applicable anyway, because it's not a savings to government. That was a wash.

What I'd like to know is this. Of those who actually paid taxes, what categories did they fit into? I ask because I doubt it's in the upper one per cent that we keep hearing about. I would suggest it's in that other loveable group the government keeps talking about.

[Pierre LeBlanc]

We'll follow up with those numbers.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Thank you.

Now I have one other quick question, Mr. Chairman.

This doesn't really apply to the bill, but we have a GST expert at the table, so I'd like to ask a question to see if he can respond to it.

It has come to our attention that even though the federal government has claimed that it would derive no revenue from the carbon tax—it would all go back to the provinces—it now appears as though, at least in two provinces, Alberta and British Columbia, where there is a carbon tax in effect, that the GST is applied to the carbon tax and therefore becomes revenue for the federal government.

Can you confirm that for me?

[Pierre Mercille]

I cannot talk about the commitment you mentioned, but what I can say is that at the inception of the GST, there was a policy decision made that the GST would apply to what is called the “consideration for the supply”, that being the the price being paid. In terms of taxes, there would be only three exceptions: the general provincial sales taxes, the land transfer taxes, and taxes imposed in lieu of provincial sales taxes where provincial sales taxes don't apply.

That was the policy adopted at the inception of the GST. That's why there are many situations where the GST is being applied, even if a component of that price includes a provincial fee, a provincial markup, a provincial tax, a provincial levy.