[How HST Works - Ontario Ministry of Revenue]
Caption: How Harmonization Works
Image: John Wilkinson, Minister of Revenue (at a new construction site?)
On July 1, 2010, Ontario is proposing to implement the most important tax reform in a generation to increase the province's competitiveness.
The tax change package includes significant tax cuts for people and business. It also includes the proposed Harmonized Sales Tax. The HST is a value-added sales tax.
From Australia to the United Kingdom, the value-added tax system is considered the most modern and efficient tax system in the world, and is used by over 140 countries and four Canadian provinces.
It's true that some prices on some items may increase. But other prices - as we have seen in other provinces - will actually go down.
Consumers wouldn't see a change in tax status for 83% of total purchases.
Right now, most businesses pay PST on various costs throughout the supply chain, which form part of the cost of doing business. In other words, though you may not realize it, the PST is charged multiple times on various business costs before a product reaches the store. That added cost of the PST is then passed on to consumers in the form of higher prices.
While consumers believe they are only paying 8% PST on the final purchase price, in fact that final price includes layers and layers of hidden taxes. The HST would eliminate this hidden tax, because most of those embedded costs are refunded to businesses through what are called "input tax credits.” These savings can be passed on to consumers through lower prices.
Let's look at an example of how harmonization generally works.
[Animation]
Let's say you're buying a new house.
[House with “Price + Embedded PST” sign]
Think about what the builder had to do to build that new house.
First of all, there's a foundation
[picture of foundation of the house + picture of cash register + “Embedded PST” tag going into the “Price + Embedded PST” sign]
and PST was paid by the builder on just about everything that was used to make that foundation.
Like, the equipment used to dig the whole
[picture of a Caterpillar excavator + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign],
the rebar??
[picture of rebars??? + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign],
the concrete,
[picture of a concrete transportation truck + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign]
and the wood framing
[picture of wood + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign].
[Fence of house built]
You know, speaking of wood,
[picture of wood + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign]
the builder pays PST on lumber and inputs used to make that lumber.
The costs to cut the tree down,
[picture of tree + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign]
to transport the tree,
[picture of truck carrying trees + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign]
the milling cost,
[picture of wood equipment + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign]
the retail cost [picture of a retailer + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign].
When the new walls were put up,
[walls on the house built]
PST was paid on the nails,
[picture of nails + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign]
the drywall,
[picture of walls + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign]
the paint,
[picture of paint + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign]
and even the plaster
[picture of plaster + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign].
PST is charged on everything, right down to the kitchen sink
[picture of sink + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign].
Plumbing supplies,
[picture of pipes + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign]
0utlets,
[picture of electric outlet + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign]
lights,
[picture of light bulb + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign]
even switches
[picture of light switch + a “Embedded 7% PST” tag which increases the size of “Price + Embedded PST” sign].
All those costs are there, hidden in the final price that the builder is asking you to pay.
[“Price + Embedded PST” Sign brought to the middle]
[House fully built]
These hidden costs are embedded in most products and services provided to you as a consumer.
From groceries
[picture of groceries]
to car repairs,
[picture of car]
clothing
[picture of clothes]
to ATV's [picture of ATV]. What is a ATV?
Under the harmonized sales tax,
[“Price + Embedded PST” sign shrinks and disappears as it lets out the all “Embedded 7% PST” tags]
many of those embedded costs disappear and those savings can be passed on to consumers
[picture of a group of people pops up]
through lower prices.
Caption (small text): Animation courtesy of British Columbia Ministry of Finance.