Provincial governments in Ontario, British Columbia, Saskatchewan, Manitoba, and PEI should follow the lead of three Atlantic provinces and Quebec, and harmonize their retail sales tax regimes with the federal Goods and Services Tax (GST), according to a new briefing on sales tax reform by the Conference Board.

“Provincial sales tax rates vary considerably, and different provinces also exempt different goods from taxation. These myriad inconsistencies place undue administrative and compliance costs on businesses, while taxing business inputs. Different sales tax regimes are a dead-weight loss, and a drag on productivity,” says Glen Hodgson, senior vp and chief economist.

According to the Conference Board’s briefing , establishing a harmonized value-added tax (VAT) system would:

> simplify tax administration;

> eliminate distortions caused by the absence of a sales tax rebate on business inputs;

> stimulate domestic investment by Canadian firms;

> reduce compliance costs for business by eliminating one collection system;

> increase the competitiveness of Canadian exports by permitting precise adjustments at the border, and

> minimize the potential for tax evasion.

Provinces should adopt a single system of VAT coverage harmonized with the federal GST, the Conference Board says. Ideally, harmonization would also occur through the implementation of a single VAT rate, such as the current 13% rate for the Harmonized Sales Tax, it adds.

To encourage provinces to create a harmonized value-added consumption tax system, Ottawa should offer to compensate provinces for lost sales tax revenues during a transition period, and contribute to any consumption tax credits that shelter low-income Canadians, it concludes.

The briefing is available at www.e-library.ca.