I don’t usually post about taxation or provincial politics (do I?). But being one of a sizeable community of technology workers (and workers in many other industries) who are required by law to charge 12% tax instead of 5% tax to customers/clients as of today, I felt that it was really important to correct the deceptive claims about “benefits to small business” (Intuit guesses at some of these benefits here) that are said to result from Harmonization. For readers not privy to this issue due to your far-flungness from it, I offer apologies (it is Canada Day, after all), the official primer, and the word from some of the HST’s opponents).
I’m also teaching a class (sorry, it’s a PDF) about the history of labour and technology this term, and part of the course deals with the growing sector of “contract” workers (workers who are not legally defined as employees of a company). A related issue (for those who work in high technology industries, and especially for those who work for multiple employers/clients) is the fact that since 2002 some workers in B.C. also come under the legal definition of a “high technology professional“, which excludes them from the benefits of overtime and holiday pay provided under British Columbia’s Employment Standards Act (contract workers, who are of more central concern WRT the HST, are obviously outside this legislation entirely, but it’s still important to understand the various shades of “employee” in B.C. to better appreciate the context and options for workers).
The rhetoric about HST in the mainstream media has thus far pivoted mainly around two stories: (1) impact of the tax on consumer household costs (mindless media tropes debunked here) and (2) the businesses who will enjoy reduced administrative costs (this blog post casts some doubt on that assertion, recounting how the B.C. government is going through some restructuring – which can be costly – partly to avoid the increase in HST). I’m not dealing with these issues here, as they are receiving plenty of discussion elsewhere.
The claims about “small business” benefits (mostly touted by the BC Liberals) from harmonization, however, are misleading.
If a small business sells goods and/or services that are already subject to PST, there may be a small benefit in that the HST can now be offset by claiming Input Tax Credits [ITCs]. Currently a business collecting PST for the government can only claim a nominal commission for that collection as against the tax, while with GST (and as will be the case with HST) they can claim all the GST/HST they spend for business purposes as against that tax. No question, this, on the face of it, offers some benefit for some small businesses.
But consider the context. When we think about “small business” we think about the coffee shop on the corner, the plumber, or the freelance software designer. There are many other sorts of contract workers who are legally categorized as “small businesses” – call centre employees, video game beta testers, stock pushers, and so on. These services were not subject to PST under the former tax system. For these workers to now comply with Canada’s tax laws, they will have to charge higher rates to clients or customers in cases where previously PST didn’t apply. For the on-contract call centre worker or game beta tester making just over $30K (net) (the minimum threshold for collecting mandatory GST/HST in most cases), this means that to be in compliance with Revenue Canada, he/she would have to invoice their “client” 12% HST instead of 5% GST. What do you think their “client” would say to that?.
Likely, clients/customers in many industries will be attracted by the lure of non-taxing contractors in the underground economy, as this article in the Winnipeg Free Press asserts.
It’s simply bad for small business. And the smaller the “business”, the worse it gets, it seems. Let’s hope this HST gets reversed.
But more importantly, let’s try not to not forget what the HST pinch is now throwing into sharp relief – the ongoing erosion of our identities as workers and the recasting of us as businesses. This process is wonderful for government revenues, and even better for the bottom line for large businesses. But it’s bad for us down here on the flexibilised assembly line.