Harmonized Sales Tax (HST) Community Information Session Honourable Wesley J. Sheridan Minister

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1 Harmonized Sales Tax (HST) Community Information Session Honourable Wesley J. Sheridan Minister

2 Budget 2012 Fiscal Context Fiscal situation of PEI deteriorated during 2011/12 Deficit rising on lower revenues and higher expenditures Liquor revenues, golf and other fees were down Pension, health care, social services, agriculture support cost increased Rising deficit risks social and health care programs Continued restraint on transfers Fiscal course needed correction 2

3 Preparations for Budget 2012 Pre Budget Consultations (main themes expressed by the public) Take steps to reduce the deficit its too high Strike balance between increasing revenues and reducing program spending Look for better efficiency, reduce waste, duplication inside departments Reduce red tape and competitive disadvantage that the private sector faces, allowing the economy to grow further 3

4 Key Budget Policy Objectives Three-year Budget Plan To foster private sector economic growth Educational focus on student achievement Modernize health system to focus on patient needs and sustainability Fiscal balance will be restored by

5 Balancing Expenditure Restraint and Revenue Increases Broadly restrain growth in expenditures Health to increase by 4.1% this year then capped at 3.5% Education to increase by 1.8% and zero after that. Other Depts. to see reductions of 3% - 5% Government streamlining and consolidation of Treasury Board, IT and accounting services Communications Human Resources 5

6 Balancing Expenditure Restraint and Revenue Increases Expenditure restraint alone is not enough Need to increase revenues by $25 million annually General fee and sundry tax increases to regional averages are not enough 6

7 Revenue Policy Government set three revenue policy objectives To balance the Budget while protecting public services To focus government policy to improve economic growth in the private sector To protect low and modest income families 7

8 Revenue Options Several options were considered Raising income taxes already high and under pressure to reduce them when/where possible Raising PST by 1% would fail 2 of 3 policy objectives Raise required revenue X Improve economic growth X Protect low and modest income families 8

9 Harmonization of Provincial and Federal Sales Taxes Harmonization achieves all three revenue objectives Raises the required revenue Improves economic growth Levels playing field for business Reduces Red Tape Protects low and modest income families Point-of-Sale rebates Heating Oil Children s footwear and children s clothing Refundable credit targeting low and modest income households 9

10 HST Announcement Budget Day Effective April 1 st, 2013 (*) HST rate - 14% applied to same base as GST Federal component - 5% Provincial component 9% Point of sale exemptions Heating oil, children s clothing, children s footwear Rebate program for low and modest income households Administered by the federal government In general, GST rules will apply to HST * Subject to Legislative approval 10

11 Impact on Business Investment Improved economy and investment will create more opportunities for Island business and jobs 11

12 Impact on Household Low income households are protected from an increase in tax through a combination of: Point-of-sale rebates Heating oil Children s footwear and children s clothing Refundable tax credit Households with income under $55k to receive up to a maximum of between $150 to $200 Similar structure to federal GST credit integrated with Income Tax 12

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16 HST Right Direction for Both Economy and Society of PEI To ensure Islanders are not burdened by the new tax model, the Province will: Exempt home heating oil, children s clothing and children s footwear Create a rebate program for low and modest income Islanders Reduce the provincial tax by 1.5% (the first time a reduction in provincial sales tax has ever been implemented on the Island) 16

17 Technical Presentation Tax System Comparison HST Facts GST/PST Current System and HST After April 1, 2013 HST additional information Community Information Session 17

18 Tax System Comparison Cascading Tax Example Car repair shop pays PST on items such as equipment, tools, repairs and maintenance, computer equipment and systems, accounting and legal fees, shop supplies, office supplies and cleaning supplies used in providing car repair services Shop embeds the PST paid into the price of car repair services Community Information Session 18

19 Tax System Comparison Expense Type: Equipment repairs Under GST/PST Cost $7,500 GST 5% 375 PST 10% 788 8,663 Input tax credit 375 Net Cost $8,288 Under HST Cost $ 7,500 HST 14% 1,050 PST 0 8,550 Input tax credit 1,050 Net Cost $ 7,500 Savings $ 788 Community Information Session 19

20 Tax System Comparison Cascading Tax Example (cont d) Customer pays GST and PST on price of car repair services Customer pays tax on tax GST and PST on the tax embedded into the cost of car repair services Community Information Session 20

21 Tax System Comparison Value Added Tax Example Car repair shop pays HST on items such as equipment, tools, repairs and maintenance, computer equipment and systems, accounting and legal fees, shop supplies, office supplies and cleaning supplies used in providing car repair services Shop receives an input tax credit for all HST paid Community Information Session 21

22 Tax System Comparison Expense Type: Equipment repairs Under GST/PST Cost $7,500 GST 5% 375 PST 10% 788 8,663 Input tax credit 375 Net Cost $8,288 Under HST Cost $ 7,500 HST 14% 1,050 PST 0 8,550 Input tax credit 1,050 Net Cost $ 7,500 Savings $ 788 Community Information Session 22

23 Tax System Comparison Value Added Tax Example (cont d) Shop does not embed tax into the price of car repair services Customer pays HST on price of car repair services Customer does not pay tax on tax Community Information Session 23

24 HST Facts General Effective April 1 st, 2013 (*) HST rate - 14% Federal component - 5% Provincial component 9% Point of sale exemptions Heating oil, children s clothing, children s footwear Rebate program for low and modest income households HST rebate program will not change the GST rebate cheques currently being received from the federal government Administered by the federal government In general, GST rules will apply to HST * Subject to Legislative approval 24

25 HST Facts What s Taxable and What s Not Subject to HST at 14% Goods and services previously subject to 5% GST Not subject to HST Goods and services not previously subject to 5% GST, like Basic groceries Prescription drugs Residential rents Day care services Community Information Session 25

26 HST Facts Benefits for Consumers Direct benefit Costs reduced from 15.5% to 14% on the majority of goods and services used by consumers Indirect benefits Businesses will save money through ITCs: Increase bottom line Re-invest in business and enhance economy Reduce prices Community Information Session 26

27 GST/PST Current System GST on purchase of goods and services Taxable at 5% of purchase price Not taxable PST on purchase of goods and services Taxable at 10% of purchase price, including GST Not taxable Community Information Session 27

28 HST System After April 1, 2013 HST on purchase of goods and services Previously subject to GST/PST Tax rate decreases from 15.5% to 14%, example of this is your telephone bill Previously subject to GST only Tax rate may increase from 5% to 14%, example of this is adult clothing Tax rate may remain unchanged at 5%, example of this is heating oil Previously exempt from all tax Tax will remain unchanged at 0%, example of this is milk, a basic grocery Community Information Session 28

29 HST System After April 1, 2013 Example: Telephone/Cable/Internet bundle Under GST/PST Cost $ GST 5% 5.24 PST 10% Total $ Under HST Cost $ HST 14% PST 0 $ Monthly savings: $ 1.57 Annual savings $ Community Information Session 29

30 HST System After April 1, 2013 Example: Electricity Under GST/PST Cost $ GST 5% 4.25 PST 10% 0 Total $ Under HST Cost $85.00 HST 14% PST 0 $ Monthly Increase: $ 7.65 Annual Increase: $91.80 Impact of new ITCs Net Annual Increase: $ Community Information Session 30

31 HST System After April 1, 2013 Example: Milk Under GST/PST Cost $6.00 GST 5% 0 PST 10% 0 Total $ 6.00 Under HST Cost $6.00 HST 14% 0 PST 0 $ 6.00 Impact of new ITCs Net price $6.00 Community Information Session 31

32 HST For PEI Compared to British Columbia Comparison to British Columbia There have been comparisons of PEI s move to HST with BC tax situation, however the following should be kept in mind when making the comparison: BC had a much smaller sales tax base BC tax rate unchanged Community Information Session 32

33 HST for PEI Compared to British Columbia Comparisons to British Columbia New tax on common goods and services, increased from 5% to 12% o Residential telephone service o Basic cable o Basic internet service o Restaurant meals o Laundry and dry cleaning services o Non-prescription drugs The above goods and services are all subject to the current PEI sales tax With the HST the tax rate will decrease from 15.5% to 14% Community Information Session 33

34 Estimated Impact on Household Sales Taxes Paid - PST to HST (Based on Household Income of $50,000 and Expenditures of $40,000) Annual $ Value Reduction 10.5% to 9% Increase 0% to 9% * Food $6000 (45) - (45) ($3000 basic groceries / $3000 prepared food) Basic Shelter Groceries Rent or mortgage - HST exempt Prepared Food: - Prepared food in grocery store - Fast food - Restaurant meals Household Operations: - cleaning supplies Transportation: - Fuel - Furniture/equipment - Appliances Health Care Exempt: - Purchase - Prescriptions - costs Maintenance/repairs - - Maintenance Medical - devices/services Basic phone Personal Care Services: - Haircuts/Esthetics Recreation: Other - movies - / Over itunes - Home the / gifts counter health / seasonal drugs/lotions Products: - Vitamins Reading Material: - Newspaper - Shampoo/Soap/Razors - Bandages/ books / subscriptions * Shelter $ Electricity $ Heating oil $ * Household operation $1850 (28) - (28) Clothing and footwear $ * Transportation $6700 (108) * Health care $2500 (26) - (26) * Personal care $1200 (8) * Recreation $3000 (45) - (45) * Reading material $ Miscellaneous expenditures $1075 (6) - (6) Total $40,000 (266) PEI Finance, Energy and Municipal Affairs Typical Rebate Net Impact (6) Net 200

35 Estimated Impact on Household Sales Taxes Paid - PST to HST (Based on Household Income of $40,000 and Expenditures of $30,000) Annual $ Value Reduction 10.5% to 9% Increase 0% to 9% * Food $4200 (32) - (32) ($2100 basic groceries / $2100 prepared food) Basic Shelter Groceries Rent or mortgage - HST exempt Prepared Food: - Prepared food in grocery store - Fast food - Restaurant meals Household Operations: - cleaning supplies Transportation: - Fuel - Furniture/equipment - Appliances Health Care Exempt: - Purchase - Prescriptions - costs Maintenance/repairs - - Maintenance Medical - devices/services Basic phone Personal Care Services: - Haircuts/Esthetics Recreation: Other - movies - / Over itunes - Home the / gifts counter health / seasonal drugs/lotions Products: - Vitamins Reading Material: - Newspaper - Shampoo/Soap/Razors - Bandages/ books / subscriptions * Shelter $ Electricity $ Heating oil $ * Household operation $1300 (20) - (20) Clothing and footwear $ * Transportation $5500 (89) * Health care $1900 (20) - (20) * Personal care $760 (5) * Recreation $1700 (25) - (25) * Reading material $ Miscellaneous expenditures $870 (9) - (9) Total $30,000 (200) PEI Finance, Energy and Municipal Affairs Typical Rebate Net Impact (1) Net 175

36 Estimated Impact on Household Sales Taxes Paid - PST to HST (Based on Household Income of $20,000 and Expenditures of $15,000) Annual $ Value Reduction 10.5% to 9% Increase 0% to 9% * Food $2000 (15) - (15) ($1000 basic groceries / $1000 prepared food) Basic Shelter Groceries Rent or mortgage - HST exempt Prepared Food: - Prepared food in grocery store - Fast food - Restaurant meals Household Operations: - cleaning supplies Transportation: - Fuel - Furniture/equipment - Appliances Health Care Exempt: - Purchase - Prescriptions - costs Maintenance/repairs - Maintenance - Basic phone Personal Care Services: - Medical - Haircuts/Esthetics devices/services Recreation: Other - movies - / Over itunes the / gifts counter / seasonal drugs/lotions Reading Material: Products: - Vitamins - Newspaper - Shampoo/Soap/Razors - Bandages/ books / subscriptions - Home health * Shelter $ Electricity $ Heating oil $ * Household operation $650 (10) - (10) Clothing and footwear $ * Transportation $2500 (38) * Health care $950 (10) - (10) * Personal care $340 (1) * Recreation $870 (13) - (13) * Reading material $ Miscellaneous expenditures $720 (2) - (2) Total $15,000 (89) PEI Finance, Energy and Municipal Affairs Typical Rebate Net Impact (4) Net 150

37 HST Additional Information Department of Finance, Energy and Municipal Affairs - - Website Canada Revenue Agency (CRA) Community Information Session 37