British Columbia is contemplating yet another change to its sales tax. The Province reverted from a federally collected Value Added Tax to a provincial sales tax (“PST”) on April 1, 2013. While the new PST is very similar to the tax that had been in place between 1948 and 2010, the PST taxes more services and intangible property and is much more complicated than its predecessor.
Residents in the Greater Vancouver Regional District (“GVRD”), which encompasses some but not all municipalities in the lower mainland of the Province, are now contemplating a proposal to add .5% to the existing 7% PST for transactions within the GVRD as a method of providing additional funding for public transit and roads. If passed, we understand that this new tax would be implemented on April 1, 2016.
The proposed tax referred to as the Metro Congestion Improvement Tax (“MCIT”) is to be “harmonized” with the PST although the details on its application have not yet been released. For example, it is not clear how the MCIT will apply to construction materials, mobile equipment, software and legal services purchased within the GVRD for use outside of the region or vice versa. The Province estimates that 40% of the current PST is paid by businesses on their inputs and have indicated that the most common audit assessment involves failure to self-assess the PST on taxable purchases made outside of the Province.
Although originally planned as a separate tax, it has recently been announced that the MCIT will not need to be separately identified on receipts or invoices which will help some retailers but it will make it much more difficult for business to determine if the correct amount of tax has been paid, particularly for taxpayers with locations both inside and outside of the GVRD. An additional concern is whether this change implies that a regional sales tax model will be adopted by other regions in the Province.
Unfortunately, there is no question that implementing a regional tax on top of the already complicated PST will not be easy. Residents of the GVRD will be able to vote on the proposal using a mail in ballot between March 16 and May 29, 2015.