Everything about Harmonized Sales Tax totally explained
In
Canada, the
Harmonized Sales Tax (HST) combines the
Goods and Services Tax (GST) and
Provincial Sales Tax (PST) into a single sales tax.
The first attempt at creating a harmonized sales tax was in
Saskatchewan shortly after the GST was introduced in
1991. The
Progressive Conservative government under
Premier Grant Devine harmonized its existing PST with the GST - ostensibly to make tax collection easier for merchants.
The harmonization proved to be immensely unpopular. The GST itself was very unpopular at the time and perhaps more importantly the federal tax was charged on many items the Saskatchewan PST wasn't (such as restaurant meals) - harmonization was therefore seen as a tax grab. In the
general election of that year, the
New Democratic Party under
Roy Romanow promised to reverse the harmonization - this promise likely contributed to their landslide victory. Saskatchewan's NDP government hasn't proposed re-harmonizing the
sales taxes since 1991, although they've significantly increased the number of items covered by their own sales tax since taking office.
In
1996, three
Atlantic provinces with
Liberal governments -
New Brunswick,
Newfoundland, and
Nova Scotia agreed with the
federal government to create a new Harmonized Sales Tax. To make this new tax more palatable to the public, the provinces all agreed to lower their sales tax rates to eight percent. The result was a 15% combined tax when the federal rate of seven percent was added. The new tax went into effect on
April 1,
1997. The HST is collected by the
Canada Revenue Agency, which then remits the appropriate amounts to the participating provinces. As of
1 July 2006, the GST was lowered to 6%, resulting in a combined HST of 14%. Effective
1 January 2008, the GST was further lowered to 5%, resulting in a combined HST of 13%.
As of 2006, the HST remains in effect in the three Atlantic provinces where it was first introduced although all three provinces have elected
Progressive Conservative governments since that time. The other provinces continue to have separate GST and PST taxes (except
Alberta, which has no PST). Among other problems, different legislation at the federal and provincial levels means that some goods are subject to GST but not PST or vice versa, and a single tax can't cover such a situation. To make matters more confusing, Quebec (7.5%) and Prince Edward Island (10%) charge their PSTs on the GST.
Although the benefits in terms of simplifying sales tax collection are obvious, ongoing jurisdictional disputes between the federal and provincial levels of government mean that most provinces are loath to give up their legislative power to decide which goods are subject to PST.
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