Greater Victoria’s business community is applauding new recommendations for the province to cut taxes to the tune of $1 billion for businesses, though some worry the recommendations do not go far enough.
A report from the independent Commission on Tax Competitiveness made four recommendations this week that would exempt businesses from the seven per cent provincial sales tax on capital expenses for items such as machinery and equipment, as well as electricity costs and other energy.
The recommendations also included implementing a value-added tax to address problems with the provincial sales tax such as investment disincentives and an increase in business costs.
The first-blush reaction of many was to wonder what’s not to like about a reduction in taxes.
“Any help the government can provide with respect to tax relief for the manufacturing sector is welcome indeed,” said Sean Hoyne, owner of Hoyne Brewing. “The craft brewing industry is very capital intensive. We are continuously buying additional equipment to facilitate growth, and that equipment is, as a rule, very expensive.
“With respect to tax relief, the brewing industry seems an appropriate place to target because the more volume we produce, the greater the tax revenues will be.”
Hoyne said the breaks on capital expenditure and energy costs would make an immediate impact because the margins in his business are very tight. “Basically, anything the government can do to help the manufacturing sector will be repaid many times over by greater local investment and tax-paying jobs,” he said.
Viking Air, which manufactures Twin Otter aircraft at facilities in North Saanich and Calgary, also sees the benefit to the proposed cuts.
“Overall, the recommendation would be very beneficial to Viking, particularly related to the exemption of PST on electricity and other energy as well as software and telecommunications as these are significant costs that we incur,” said Viking controller Brian Sluggett.
Sluggett said because the company is primarily a manufacturer, it already qualifies for the production, machinery and equipment PST exemption on the majority of its capital purchases related to production.
Dan Gunn, chief executive of the Victoria Innovation, Advanced Technology and Entrepreneurship Council, said the tech sector would also benefit. “Anything that reduces the costs related to growing a company and expanding its production or research equipment is going to give B.C. companies a competitive edge,” he said.
The commission estimates that removing the provincial tax on capital investments for machinery and equipment would cost the province $640 million annually, while taking the PST off electricity and other energy costs amounts to $520 million a year.
However, the commission believes those measures would be offset by increased investments and likely higher wages for workers, which increases income revenues for the province.
The B.C. Chamber of Commerce said the commission recommendations align with its own.
“It’s validating to have this independent panel acknowledge our calls to reject the complicated and archaic PST,” said chamber CEO Val Litwin. “If the government were to implement only one change to our system of taxation, it would be to ditch the PST in favour of a made-in-B.C. value-added tax that would streamline taxation and get rid of the cascading tax effect of the current system.”
While the Victoria Chamber of Commerce applauded the suggestion of a made-in-B.C. value-added tax that would attract investment, it had been hoping to see recommendations around commercial property taxes.
“What we most often hear from local business owners is their commercial property taxes do not stand the test for value. We question whether a municipality can justify its decision that determines a business consumes up to four times more municipal services than a resident,” it said.
The Victoria Residential Builders’ Association also thought the report fell short. “One of the biggest industries is housing, yet I don’t see any home building groups listed as being consulted,” said VRBA executive director Casey Edge. “Which explains why the property transfer tax and housing taxes are not addressed.”