Canadian Vending

Products Snacks
A Taxing Issue


December 3, 2009
By Michelle Brisebois

Topics

Harmonize: Pleasing or congruent arrangement of parts.
Tax: To make onerous and rigorous demands on.
Harmonized Tax: Apparently … an oxymoron.

Harmonize: Pleasing or congruent arrangement of parts.

Tax: To make onerous and rigorous demands on.

Harmonized Tax: Apparently … an oxymoron.

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On July 1, 2010, Ontario and British Columbia will join New Brunswick, Newfoundland and Nova Scotia by scrapping the two-tiered provincial sales tax (PST) and federal goods and services tax (GST) in favour of one harmonized sales tax (HST). HST in B.C. will be set at 12 per cent with the Ontario HST clocking in at 13 per cent.

The provinces will “redeploy” their tax collections agencies, leaving it to the feds to gather the taxes. In turn, the federal government will funnel back part of the HST to the provinces participating in the program.

So why introduce a new tax structure that may increase consumer prices in the midst of a recession?

Many consumers are asking just that question.

The objective is to alleviate some of the tax burden placed on businesses by shifting some of it to the consumer. The plan is for business costs to come down significantly as taxes are removed from materials and equipment purchased, resulting in a projected reduction in operating costs which ideally they will pass onto the consumer.

For many sectors in both provinces, there won’t be a huge change to the consumer since many items are already subject to both taxes. For those businesses who currently only charge the federal tax (GST) – “harmonizing” in the provincial tax will more than double the tax on the item.

If you’re buying a vehicle, house or in B.C., a restaurant meal – it’s going to be a big change.

Items that will continue to enjoy a tax-free status include: basic groceries, food products (except for candies, confections, snack foods and soft drinks), prepared foods sold by an eating establishment for $4 or less, prescription drugs some medical devices, and various municipal services. Items that were subject only to the PST and will continue to only bear the provincial tax (federal portion exempt) include: children’s clothing and footwear, children’s car seats and car booster seats, diapers, feminine hygiene products, books (including audio books).

Anything subject to GST is fair game and businesses in both provinces are left wondering how it will impact their sales.

It’s been reported that when Ottawa introduced the 7 per cent GST in 1990, restaurant business fell 7.5 per cent and a similar effect is expected from the implementation of the HST in B.C. where PST is not currently charged on restaurant meals. The industry argues that since most of its cost of doing business is related to food and labour costs, the tax relief from this new system will be minimal.

The impact on foodservice in Ontario won’t be as dramatic as in B.C. In B.C., implementing the HST will mean meals will now go from a 5 per cent added tax to a 12 per cent load. The Ontario foodservice industry already charges both taxes so consumers won’t notice a big hike.

CAMA vice-president Neil Madden of ECS Coffee & Vending, Burlington, stated via e-mail that in Ontario: “Initial research shows some benefits from the proposed harmonized tax. It will make it easier for vending companies to track their taxable goods and will remove the complications that now exist where some products are PST exempt while others are not. For example, food items under $4 are exempt, however, snacks are not. Juices are also PST exempt. With a harmonized tax it will reduce paperwork as all vend product is GST taxable and we will now have one tax across the board. On the downside, a higher tax will be in place and therefore must be reflected in pricing to the consumer.”

While Ontario may see some efficiency benefits from “one-stop tax shopping”, British Columbia is dealing with a different set of issues. For the B.C. restaurant industry it’s an issue of fairness. Consumers are still hanging on tightly to their hard-earned money and tourists are filling the void. To make matters worse – the tax-free status enjoyed by food sold at grocery stores is now light years away from the fully burdened restaurant food and the upside in terms of lowering business costs, may not be all that dramatic.

“There has been an outcry in B.C. from the whole foodservice industry,” confirms Glen Jackson General Manager of Ryan Vending. “Vending will need to increase the retail price at the machine to compensate. All vended products will attract the extra tax. Ninety-eight percent of all vended products don’t attract PST currently, therefore they only have one tax to deal with so operators won’t notice any administrative efficiency in dealing with only one agency for the HST.”

While nobody can say for sure what the hit to sales will be when prices to the consumer go up – it’s a safe bet that a 5- to 10-cent increase will result in a softening of sales through the machines.

Not all is lost however. A solid communications strategy can go a long way.

“We’re recommending to the association that they increase on-machine signage to communicate that all taxes are included in the final price,” advises Glen Jackson.

It’s important to set a level playing field in the mind of the consumer. They only see the vended final price and will compare it mentally to the on-shelf price in other retail stores where the sticker price is net of taxes. Start working on some stickers or signage for the machines in the spring – touch base with your association to get advice on the wording and then take a deep breath.

After all, nothing in life is guaranteed – except, of course, death and taxes.