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The Harmonized Sales Tax -- Through an Economic Prism

This issue of Policy Perspectives is guest authored by Jon Kesselman of Simon Fraser University.  Recognized as one of Canada's leading public finance and tax policy experts, Dr. Kesselman outlines the economic benefits of the Harmonized Sales Tax which the BC government plans to introduce later this year.  The Business Council is grateful to Dr. Kesselman for contributing this timely article.


  • Economists use a number of criteria to assess tax policies, including simplicity, efficiency, and equity.
  • The HST is clearly superior to the province’s existing Retail Sales Tax (RST) in terms of administrative simplicity and the cost of compliance, as it eliminates the need for BC businesses to collect, remit, and comply with the rules of two separate sales tax systems.
  • The HST will produce efficiency benefits for the BC economy in three respects: “static efficiency” (how effectively the economy utilizes its existing stock of capital, labour, and raw materials); “dynamic efficiency” (how effectively the economy utilizes resources to expand production and consumption over time); and “trade competitiveness” (the impact of tax policy on the ability of BC firms to compete in external domestic and foreign markets). 
  • In terms of equity, the government’s proposed refundable tax credits ensure that low-income British Columbians will be shielded from any adverse impact on living costs associated with the introduction of the HST.
  • Public acceptance of the HST has been hindered by the fact that it involves replacing the hidden portion of the RST (the portion paid by businesses) with a more visible tax. 
  • Experience with the federal Goods and Services Tax and with HST-type taxes adopted in Atlantic Canada confirms that businesses pass on to consumers most or all of the benefits associated with lower tax burdens, by reducing the prices of goods and services.
  • In summary, converting BC’s retail sales tax to a value-added tax and packaging it with the federal GST in a new harmonized sales tax will have wide-ranging positive effects on the province’s economy.  

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