Business Council of B.C. analyzes cost of doing business: B.C. is moving in the wrong direction

July 31, 2019

Vancouver, BC – July 31, 2019 - The Business Council of British Columbia (BCBC) has released a paper that examines the rising cost of operating a business in the province compared to the situation several years ago, due to higher taxes and the ever-growing impact of government red tape and regulation. One important conclusion is that provincial taxes paid by businesses have increased by around $5 billion annually since 2013.

Some key findings from the paper include:

  1. The single biggest tax increase on business stems from the elimination of the Harmonized Sales Tax and return to the provincial sales tax (PST) in 2013. Under the PST system, businesses are paying an extra $3 billion per year in sales tax on a wide range of business inputs. Under the HST system businesses did not face this sales tax burden.
  2. The province’s new Employer Health Tax is also a sizable tax hit on business. Once MSP premiums are fully eliminated next year, the Business Council estimates the net tax impact on business will be approximately $800 million in additional tax, paid mostly by large and medium-sized businesses.
  3. The third biggest tax increase on business flows from a two-percentage point increase in the provincial corporate income tax rate since 2013. This adds an additional $700 million in taxes borne by B.C. businesses.
  4. The escalating B.C. carbon tax is also making it more costly for some companies to operate and added several hundred million dollars to the private sector’s collective energy bill. Unlike other jurisdictions that have adopted carbon pricing, B.C. has done very little to lessen the impact of higher energy taxes for trade-exposed industries in the natural resource, manufacturing and transportation industries.

“This B.C. Day, there doesn’t appear to be much to celebrate if you operate a B.C.-based business. As the provincial tax burden on enterprises has increased, business taxes have been slashed in some competing jurisdictions,” said Jock Finlayson, Executive Vice President and Chief Policy Officer at the Business Council of B.C. “The business tax advantages that the province once enjoyed have mostly disappeared and we are now less competitive with neighboring jurisdictions in the United States and Canada, including Alberta, where the government has committed to lowering its provincial corporate income tax rate from 12% to 8% in stages.”

Additionally, the relatively high personal income tax rates that B.C. applies to high-skilled workers pose a challenge at a time when many U.S. states are taking steps to attract and retain top talent.

“Tax changes at the federal level have compounded the situation for B.C.-based businesses,” said Ken Peacock, Vice President and Chief Economist at the Business Council. “Changes to federal tax rules governing Canadian-controlled private corporations and rising payroll taxes have increased the fiscal burden on businesses in B.C.”

BCBC has advocated for comprehensive tax reform that will modernize the tax system and lighten the fiscal burden on businesses to create a better environment for private sector growth and increased productivity. Solutions are needed to eliminate tax inefficiencies, improve fairness and ensure economic competitiveness. The last comprehensive review of the Canadian tax system was carried out in 1962 under then Prime Minister John Diefenbaker; 1962 was notable as the year of the Cuban Missile Crisis, the first recording by the Beatles, and for American astronaut John Glenn orbiting the Earth. In the nearly six decades since the last review, business, competition, technology, and the Canadian population have all changed significantly.

Apart from higher taxes, government is also adding to the regulatory burden on B.C. companies. Since 2016, B.C. has seen a host of actual or proposed changes to employment, labour, environmental and land use laws and regulations. The cumulative impact of new laws and regulations is making it harder for many businesses to operate and discourages investment in some sectors.

“Policy makers need to be more sensitive to the impact of provincial tax and regulatory policies on business,” said Mr. Finlayson. “They should understand that without new investment and a desire by companies to expand, fewer jobs will be created, some existing jobs will be in jeopardy, and overall economic growth in the province and country will suffer.”

About the Business Council of British Columbia

Now in its 53rd year as the premier business organization in British Columbia, the Business Council of B.C. is a non-partisan organization made up of 200 of the leading and largest companies, post-secondary institutions and industry organizations from across B.C.'s diverse economy. The Council produces high quality public policy research and advocacy in support of creating a competitive economy for the benefit of all British Columbians.

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