Whether it is considered a welcome break or a hollow gesture, the federal government’s GST cut to five per cent took effect Tuesday with little fanfare and few complaints from retailers who collect the tax.
The government estimates that cutting the tax one percentage point will save Canadians $6 billion, which will flow back to them a few cents at a time, depending on the size of their purchases, adding up to about $150 to $200 per household each year, according to the Canadian Taxpayers Federation.
For big retailers like Future Shop, the change was a simple computer-system change, which gives their customers a break on the prices they’re paying.
Prime Minster Stephen Harper promoted the five-per-cent GST as part of his last election campaign.
Prime Minster Stephen Harper promoted the five-per-cent GST as part of his last election campaign.
J. P. Moczulski, Reuters
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“I would say consumers will be happy [about the cut],” Ram Manaktahla, general manager of the Future Shop outlet at Robson and Granville streets in downtown Vancouver said.
“Think of all the products customers [are buying]. From iPods to digital cameras, flat-screen televisions, laptops, notebooks — they’re saving one [percentage point] on all of them.”
Vancouver-based retail consultant David Gray added that the first stage of the Conservative government’s GST cut, from seven per cent to six per cent which took place July 1, 2006, went relatively smoothly for retailers, “so I think they know the drill.”
“The complaint of retailers is they’re essentially taking on the job of tax collector without a lot of support and basically no thanks,” Gray said. Whether the tax fluctuates, he added, is less of an issue.
However, government critics counter that cutting the consumption-based GST may mean little for average Canadians.
“Those with the highest salaries — the millionaires, the big banks, the [profitable] corporations … The ones that don’t need the help are going to get the most help,” from the GST cut, said federal NDP leader Jack Layton.
He added that average families may also see higher property taxes, post-secondary education fees and other bills.
Patricia Croft, chief economist with the investment firm Phillips, Hager & North, said anyone making big-ticket purchases will benefit from the consumption tax reduction.
However, she added that “in general, most economists would prefer a cut in income taxes. It’s a more efficient way to reduce the tax burden.
“By cutting the GST, hopefully it causes Canadians to spend more.”
The GST savings amounts to about $2 on the purchase of a $199.99 iPod MP3 player, $100 on a $10,000 home-theatre system or $300 on a $30,000 automobile.
Manaktahla said Future Shop gave its Christmas-season customers a jump on the GST break by knocking the percentage point off its prices starting Dec. 28. Customers who made purchases up to 30 days before that date could claim the reduction under the store’s “price-protection” guarantee.
Consumers need to be wary, however, to make sure they are getting full benefit of the cut, especially since the transition is occurring over the Christmas shopping period, according to tax expert Beverley Gilbert.
Gilbert, a chartered accountant and national tax-practice leader for the law firm Borden Ladner and Gervais, said people going to stores in January to return gifts purchased in December need to keep a close eye on their receipts to make sure they are credited for the full amount of GST that was paid on the gift in the first place.
Gilbert added that homeowners who take possession of new houses after Jan. 1 will get a GST break, too, but they will have to apply to the federal government for a rebate instead of seeing it knocked off the purchase price in their builder’s contract.
Consumers who have leased cars or other property should also see the GST cut in their payments, Gilbert added, even if they signed leases prior to Jan. 1.
John Williamson, national director of the Canadian Taxpayers Federation, however, defended this second trim in the GST.
Despite the criticisms, Williamson said the GST reductions from seven per cent to five per cent are broad-based measures that put, by his estimate, $10 billion a year back into people’s pockets.
“This is good news, particularly since $10 billion in the pockets of Canadian consumers is preferable to Ottawa hoarding the cash,” Williamson said.
Despite the criticisms, Williamson said the GST reductions from seven per cent to five per cent are broad-based measures that put, by his estimate, $10 billion a year back into people’s pockets.
“This is good news, particularly since $10 billion in the pockets of Canadian consumers is preferable to Ottawa hoarding the cash,” Williamson said.
http://www2.canada.com/vancouversun/news/business/story.html?id=34b943f3-2a71-422f-b676-10f1b85b4c7a&k=87417
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