Mr. Speaker, it is a privilege for me to rise today to speak on Bill C-70, the harmonized sales tax bill.
A great deal has been said in this debate about harmonization, what it will mean for Nova Scotia, New Brunswick, Newfoundland and Labrador. For the benefit of this House I want to take a moment to review some of these benefits. I would remind hon. members that the HST and its ensuing benefits will impact positively on the three participating provinces.
Clearly there could be additional benefits for the other provinces as well. I hope people are listening carefully to this debate today, especially in my home province of Ontario. It has been repeated several times in this debate that Bill C-70 represents a significant step toward a fully harmonized sales tax system, one of the government's goals.
The end result for the three participating provinces will be a system that is fair to consumers and small businesses residing and operating there. The new system will also promote fiscal co-operation and harmonization among the federal government and those three provinces. Hon. members know why harmonization will result in a simpler, fairer and more economically efficient sales tax system.
First, consumers in those three provinces will benefit. Removing the provincial retail sales tax from the business inputs, together with a lower 15 per cent rate and reduced compliance costs for businesses will mean lower consumer prices on many goods. Consumers will also know the full price of what they are buying before they get to the cash register because of tax inclusive pricing. At the same time, the rate of sales tax payable will be visible on their receipts.
Second, under the HST, businesses will be dealing with only one set of sales tax forms and operating rules. There will be one tax administration instead of the two sets of everything they do now. Not only will they have reduced compliance costs, but the competitiveness of businesses will be promoted. That is because the HST payable on business inputs will be recoverable, especially for businesses located in the participating provinces.
There will also be lower administrative costs under the HST because overlap and duplication will be eliminated. Of course, the single lower rate of 15 per cent is significantly lower than the rates currently in place in the three participating provinces.
It is important to note that the harmonization in the participating Atlantic provinces will mean a drop in their combined sales tax rates from just under 20 per cent to 15 per cent in Newfoundland and Labrador and from just under 19 per cent to 15 per cent in both Nova Scotia and New Brunswick.
To ensure a smooth transition, the HST base will be the same as the GST base. The rules governing the new system will generally be the same as those for the GST.
Economic benefits will also flow from the removal of tax on business inputs. In addition to eliminating the tax cascading that is inherent in existing provincial retail sales tax systems, the harmonization of sales taxes will minimize distortions in investment decisions.
I refer to businesses being able to recover the tax on business inputs in the new system. Keep in mind that the current provincial retail sales taxes are applied on the price of purchase, including the GST. Since the existing provincial retail sales taxes do not have a mechanism for removing taxes paid on purchases by businesses in the course of producing the goods and services that they sell, these taxes become embedded in the prices that businesses charge for the goods and services they produce.
A key advantage of the HST will be removal of the embedded taxes. This will make the tax payable on goods and services more transparent to consumers. In addition, companies and the participating provinces will be able to price their goods more competitively. This will be particularly advantageous for exported goods which will be completely relieved of tax. Along with promoting the international competitiveness of businesses in the participating provinces by removing tax from exports, steps will be taken to ensure that they and their competitors and non-participating provinces are treated equitably.
The design of the tax will ensure that goods and services sold into a harmonized province from outside the province for consumption or use in the participating province are subject to the same level of tax as goods or services sold within the province.
Registrants across Canada will be required to collect HST on goods or services sold in a participating province or shipped to that province. At the same time they will be eligible for input tax credits for HST paid on inputs into their commercial activities. Under current provincial sales tax rules in both participating and non-participating provinces, consumers are required to pay tax on any taxable purchase consumed in their home province.
If a purchase is made from a business in another province, consumers are required to self-assess the applicable provincial sales tax. The requirement to collect tax on interprovincial sales will ensure the application of a provincial tax is continued under harmonization in an administratively efficient manner.
In order to ensure a consistent and simple approach for businesses required to collect HST on interprovincial sales, a single set of rules will be provided in the Excise Tax Act. The federal government will apply this approach on behalf of any province that adopts a similar system.
As hon. members know, the registrants will be able to recover tax payable at the HST rate of 15 per cent on goods and services to the extent that they are acquired for consumption use or supply in a commercial activity. This will eliminate the tax cascading inherent in existing retail sales taxes in participating provinces.
We know too that the removal of tax on business inputs will enhance the competitive position of businesses operating in those provinces. Similarly, special rebate mechanisms will apply where property or services are acquired in participating provinces and the property is removed, or the services are for use outside these provinces by people who are unable to claim input tax credits.
Let me emphasize that registrants regardless of where they are located will be able to claim input tax credits in respect of tax paid or payable either at the 7 per cent GST rate or 15 per cent HST rate on property and services they acquire or import into Canada as inputs into their commercial activities.
By allowing registrants located in participating or non-participating provinces to claim input tax credits for tax paid or payable regardless of whether it was charged at the 7 per cent GST rate or at the 15 per cent HST rate, the dual objectives of eliminating tax cascading and maintaining competitive equity can be achieved in a way that is both simple and effective.
Businesses engaged in commercial activities anywhere in Canada that purchase goods and services in participating provinces that are taxed at the harmonized rate will be entitled to recover tax payable at the HST rate. Another result is that when reporting tax collected or claiming input tax credits, registrants will not have to separately identify the federal and provincial components of the HST at the 15 per cent rate or tax collected or payable at the 7 per cent GST rate.
Furthermore, most registrants will continue to use the current GST return to calculate net tax remittances. This aspect of harmonization will make a difference between the participating provinces and the remaining non-harmonized provinces.
Let me reiterate that at present in all provinces except Alberta, consumers pay provincial sales tax on all taxable purchases consumed in their home province. If they buy something outside the province they are required to self-assess the provincial tax applicable. Businesses generally apply only the GST on sales to other provinces but they are still required to indicate where PST does not apply, for example by destination. The PST does not apply out side the province.
Under the HST there will be no hidden taxes because of the input tax credits that businesses can claim to recover the tax on goods bought to run their operation and make products. Equity and competitiveness for Atlantic businesses dictate that all goods and services consumed in participating provinces should be subject to the same level of sales tax. This includes goods supplied by businesses in non-participating provinces for final consumption in Atlantic Canada.
Introducing a national measure for collecting tax on interprovincial sales will establish a stable, fair and predictable set of rules for businesses selling into the harmonized provinces. As we know, businesses in the non-participating provinces will have to apply the 15 per cent HST on all sales into a harmonized province.
I should point out here that frequent changes will not be required as other provinces harmonize. This is not a new sales tax on goods and services sold in the participating provinces. Sales tax on interprovincial sales has always been applicable. Many national businesses involved in interprovincial transactions already collect
and remit provincial taxes on a province of destination basis. This new approach merely ensures that sales tax is collected and remitted more efficiently and effectively.
As long as collection of tax on interprovincial sales is based on a single set of rules, collecting the 15 per cent HST will not involve a significant change for these businesses.
Some consumers shop to purchase items free of provincial sales tax in other provinces. While consumers are required to self-assess the applicable provincial sales tax on these purchases, as I mentioned before, this is not the most effective way to ensure that the tax is paid.
With businesses now having to collect and remit the HST when they sell into a participating province, consumers will no longer be able to purchase these goods free of provincial sales tax. Consequently, the same tax savings incentive to buy out of province will no longer exist. This approach is more equitable for businesses and consumers alike. Retailers in participating provinces will no longer be at a disadvantage compared out of province vendors. Both will be required to charge the full rate of tax on their sales.
Collection of tax on interprovincial sales requires two basic elements, a common base and referencing of federal legislation. The national approach to interprovincial sales establishes an efficient and effective system for collection of tax on interprovincial sales which can benefit all provinces by facilitating the collection of the provincial sales tax on all sales into the province.
We already know the HST treatment of interprovincial sales benefiting participating provinces. For example, through additional sales tax revenues and by providing a level playing field for all businesses selling in or into participating provinces.
We know too that there will be no incentive for businesses in any province to avoid paying tax on their inputs as they can claim input tax credits for the full amount of tax paid.
As I said at the beginning, this bill puts into law the first step toward replacing the GST with a truly national sales tax system. Perhaps, when the non-participating provinces see the benefits of harmonization, they too will join in and reap the benefits. After all, the consumers and businesses in those provinces deserve the same breaks as residents in Nova Scotia, New Brunswick and Newfoundland and Labrador.
No doubt the HST will be a better sales tax system when it is a national system. But this is a start, an important, valuable start that will truly benefit the economies of the Atlantic provinces. That is why I urge all hon. members to support this bill.