The single largest tax increase on B.C. businesses occurred in April 2013, when the HST was scrapped and the province reverted back to the antiquated Provincial Sales Tax (PST) system. The HST was a value-added tax, meaning businesses received credits for the taxes paid on inputs used in the production process. In contrast, with few exceptions (such as electricity), under the PST businesses pay tax on most inputs and receive no offsetting credits. Altogether, businesses are responsible for 40 per cent of the PST revenue collected by the province. This year, B.C. companies will pay $2.9 billion in PST on purchased goods and services – taxes that used to be fully credited under the HST. On top of this are extra compliance costs from having to deal with both the PST and the federal GST system.
The PST’s return sharply increased the aggregate tax burden on business. Very little has been done by the government to mitigate this additional cost for B.C. firms.
British Columbia’s corporate income tax rate has climbed by two percentage points in the last five years. A one-point increase (from 10 to 11 per cent) was implemented in 2013, followed by a second one in 2017. The two-point jump in the CIT rate equates to $680 million in incremental government revenue this year, compared to what the province would have collected had the tax remained at 10 per cent.
B.C.’s carbon tax – the highest in North America – was introduced in 2008 at $10/tonne of emissions, increasing gradually to $30/tonne by 2012. It was then frozen through 2018, when the NDP government decided to lift the tax to $35/tonne -- on the way to $50/tonne by 2021. The initial carbon tax boost translates into $213 million in extra government revenue in 2018-19 – with that amount rising to $660 million by 2020-21. Businesses are responsible for 40-50 per cent of carbon tax revenue, so the escalating tax promises to add ~$265-$300 million in costs by 2020-21. And this is separate from the hundreds of million dollars in carbon taxes that businesses have already been paying with the tax at $30/tonne.
When B.C. embarked on its carbon “tax shift” policy a decade ago, the government committed to use part of the revenue from the new tax to finance a two-point reduction in the corporate income tax rate. Initially the government delivered on this pledge. However, as noted above, it reversed course in 2013 and has pushed the CIT rate up by two points since then. For most companies, the outcome of B.C.’s carbon tax policy is that they face the same statutory corporate tax rate as in 2007, but now pay more for energy and energy inputs. As a result, B.C. has become a less attractive jurisdiction for business investment and production, particularly in the agriculture, forestry, mining, energy, manufacturing, and transportation sectors.
Finally, the NDP’s Employer Health Tax (EHT) will spring to life in 2019. At 1.95 per cent of payroll, it will create another tax headwind for many employers. In its first full year, the EHT is expected to raise $1.8 billion, with all of this coming from organizations with payrolls over $500,000. Larger and mid-sized employers will shoulder most of the EHT burden. Eliminating Medical Services Plan (MSP) premiums provides some offset, but the net impact is still a sizable payroll tax increase for businesses, in part because employers collectively only paid around half of MSP premiums (with the rest remitted by individuals). We estimate that employers will be paying $700-$800 million more in payroll tax each year under the EHT, even after MSP premiums are gone.
There have been a couple of small-scale tax reductions for business in the last few years, but they don’t come close to matching the tax hikes and new taxes summarized above. And this column hasn’t even looked at property taxes, fees and other non-tax levies imposed by the government, many of which have also been increasing.
If we tabulate all the tax measures adopted by the province, next year businesses will face about $5 billion in extra government-mandated tax costs, compared to what they were paying at the start of 2013. This growing tax burden is one chapter in the larger story of the province’s eroding competitiveness.
Jock Finlayson is the Business Council of British Columbia’s executive vice-president and chief policy officer; Ken Peacock is the council’s chief economist.
As published by Business in Vancouver.