Restaurant owners urging the B.C. government to protect their industry can look to the upcoming provincial budget as the next opportunity to find out whether they will have any relief from the harmonized sales tax slated to take effect on July 1.
Harmonization will mean that customers used to paying 5 percent goods and services tax but not the 7 percent provincial sales tax on restaurant meals will have to pay 12 percent HST on the same meals.
“We believe that the industry will lose maybe 7 percent of its sales at least in the first year. It’s about a $10 billion industry with close to 180,000 workers. Our prediction is that we could lose from 8,000 to 10,000 jobs as business slows down,” said Ian Tostenson, president and CEO of the B.C. Restaurant & Foodservices Association.
The industry has asked the government for an exemption from the 7 percent new meal tax.
“We’ve also said in the alternative they may want to consider staging the tax for three years in recognition of the consumer,” Mr. Tostenson said.
Graham Currie, communications director for the B.C. Ministry of Finance, says Finance Minister Colin Hansen has already said no to an exemption but is open to considering mitigation.
“If there is going to be any mitigation measures, it could be in the budget on March 2,” Mr. Currie said.
According to a survey commissioned last year by the Canadian Restaurant and Foodservices Association (CRFA), 64 percent of B.C. consumers favour the exemption.
The survey also found that 81 percent think it’s unfair to implement a tax that will hurt some workers and businesses without doing something to help those shouldering the greatest impact.
It is also unfair because, except for ready-to-eat food, all other food purchased from the industry’s closest competitors—grocery stores and supermarkets—will remain tax free, said Mark von Schellwitz, Western Canada vice president of CRFA.
Mr. von Schellwitze said over 90 percent of CFRA members believe the new tax will cause a loss in sales—a loss that will mean nearly $50,000 a year for the average restaurant if sales decline 7.5 percent.
In addition, he said, “71 percent of our members believe this will result in fewer hours and lost jobs for their staff, and 6 percent said this could cause them to go out of business.”
The industry is not disputing the general efficiency of the HST, said Mr. Tostenson. “What we don’t agree on is, as you get to the long-term benefits, how do you protect industry from undue harm?”
As well as simplifying the system and lowering administration costs, sales tax harmonization will allow businesses to claim Input Tax Credits (ITCs) on eligible expenses. The theory is that, to remain competitive, businesses will pass on the cost savings to consumers as lower prices.
However, not all expenses are ITC eligible. Capital-intensive industries such as manufacturers will be able to claim ITCs for machinery, equipment, and other inputs that make up a large proportion of their expenses.
Labour-intensive industries like restaurants are in a different boat. While payroll comprises a large proportion of their expenses, labour is ineligible for the ITC.
The HST was announced last July 23. The B.C. Liberals, who won the provincial election last spring, said during the election that they had no plans to adopt the tax.
Mr. Currie said the HST wasn’t considered until after the election. “The minister has said his door is open and he is quite willing to talk to [industry],” he added.
But Mr. Tostenson said it was because industry was getting very frustrated with the lack of progress with government to find a solution that it launched its nomealtax.ca campaign last December.
Over 175,200 people have voted no to the new meal tax on the website, and petitions are available at restaurants throughout B.C.
On July 1, Ontario will also introduce a federally administered HST. The 13 percent blended tax will combine the 5 percent GST with Ontario’s 8 percent PST.
The difference is that Ontario has had 8 percent PST for years, so the HST won’t affect restaurants there very much, whereas B.C. has never had PST on restaurant meals, Mr. Tostenson said.
On Jan. 14, B.C. announced HST rebates to qualifying schools and hospitals.
This tax relief was in addition to an increase in the maximum value of new homes eligible for a rebate, announced last November, along with rebates listed in last July’s HST announcement which included fuel at the pumps, books, children’s clothing, municipalities, and charities.
“When you tax something like a restaurant meal, which is somewhat discretionary, you end up with business going down,” said Mr. Tostenson. “We’re not opposed to the HST as a tax, but more [concerned about] how to mitigate the impacts for affected industries.”