February 26, 2009
On February 26, 2009, Tax Executives Institute submitted the following comments to the Ontario Ministry of Finance, urging the harmonization of the province's retail sales tax witht he federal Goods and Services Tax in Canada. The comments were prepared under the aegis of TEI's Canadian Commodity Tax Committe, whose chair is Phil W. Riley of ArcelorMittal Dofasco Inc., with assistance from the Institute's Toronto Chapter. TEI General Counsel Mary L. Fahey served as staff liaison on this project.
On behalf of Tax Executives Institute, I am writing to express TEI’s support for the replacement of the current Ontario Retail Sales Tax with a value-added tax that is similar or identical in nature to the federal Goods and Services Tax. Substituting a value-added tax system for the current provincial system will eliminate the cascading effect of sales tax on business inputs and promote a more neutral and competitive business environment.
Background
Tax Executives Institute is the preeminent association of business tax executives. The Institute’s 7,000 professionals manage the tax affairs of 3,200 of the leading companies in Canada, the United States, Asia, and Europe and must contend daily with the planning and compliance aspects of Canada’s business tax laws. Canadians make up 10 percent of TEI’s membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up one of our nine geographic regions. Our non-Canadian members (including those in Europe and Asia) work for companies with substantial activities in Canada. In sum, TEI’s membership includes representatives from most major industries including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial services; telecommunications; and natural resources (including timber and integrated oil companies). TEI is concerned with issues of tax policy and administration and is dedicated to working with government agencies to reduce the costs and burdens of tax compliance and administration to our common benefit.
The Need for Harmonization
Four provinces in Canada have led the way in terms of replacing their retail sales taxes with a value-added tax, though they have taken two slightly different approaches in doing so. Ontario should take a similar path.
Studies by the C.D. Howe Institute and the Centre for Spatial Economics have shown that harmonization — by changing how the tax is applied and collected — would lower business costs and encourage investments that are good for the economy, as it has been shown in other jurisdictions. In fact, Canada is the only 1 of 30 OECD countries to use a two-tier sales tax system.
Ontario’s harmonization of its Corporate Income Tax administration with the federal government’s provides an example of the significant benefits for government and taxpayers that can result from moving to a single tax base and administration. There are models and proposals that would facilitate Ontario making this move in the provincial sales tax area while maintaining an appropriate level of provincial oversight and control.
TEI has long supported harmonization of the provincial and federal sales tax systems, including the zero-rating of financial services.[1] Because there are technical and administrative issues that need to be addressed to achieve sales tax harmonization, TEI would be pleased to consult further with the Ministry of Finance about crafting a workable system.
Conclusion
Tax Executives Institute appreciates the opportunity to comment on this issue. TEI would be pleased to meet with you or members of your Ministry to discuss this issue more fully. If you should have any questions about TEI’s letter, please contact TEI’s Vice President for Canadian Affairs Sherrie Ann Pollock at 416.955.7373 (sherrieann.pollock@rbcdexia-is.com). Alternatively, questions may be posed to Phil W. Riley, Chair of TEI’s Canadian Commodity Tax Committee at 905.548.4475 (phil.riley@arcelormittal.com).
Tax Executives Institute, Inc.
Vincent Alicandri
International President
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[1] As early as 1989, TEI expressed regret that the federal sales tax reform did not encompass the provincial sales tax systems. In addition, on January 20, 1997, Tax Executives Institute testified in support of proposed legislation harmonizing the federal GST and provincial sales tax systems in the Maritime Provinces. TEI also wrote to the Finance Ministers of the non-harmonizing provinces to encourage them to consider harmonizing their sales tax systems so that Canada could have the benefit of a single national consumption tax with a single rate, identical base, and a unified administration. Finally, TEI has consistently urged the Federal government to provide financial incentives to the provincial governments to facilitate harmonization of sales tax systems.