Ontario’s sales tax harmonization impacts the channel

In the recent provincial budget, the Ontario government announced that, effective July 1, 2010, Ontario will harmonize its Provincial Sales Tax (PST) with the federal Goods and Services Tax (GST) to create a single, 13 per cent Harmonized Sales Tax (HST).

For the channel, this will mean administrative benefits from no longer having to collect administer, and remit two separate sales taxes, each with its own rules and exemptions. Instead, they will only need to collect the HST and remit it to the federal government, which will send Ontario its share.

Greg Tobin, president of distributor D&H Canada, said in terms of the costing-structure the HST should be revenue-neutral for Ontario resellers, and will help on the administrative side by reducing complexity and the paperwork burden.

“I see it as being neutral in the manner it flows through the channel,” said Tobin. “Rather than doing two separate remittances it will now be consolidated. So it will probably save a little bit of time and effort, but it won’t be substantial.”

However, substantial savings are just what is being predicted by Bell Canada. Mirko Bibic, Bell’s senior vice-president of regulatory and government affairs, said there were certain categories of IT equipment that businesses could write the GST off on, but not the PST. With the HST now allowing businesses to write-off the full sales tax on that equipment in Ontario, Bell Canada is estimating annual savings of $80 million.

“In our view the way the retail sales tax was working in Ontario was an investment barrier,” said Bibic. “We paid significant Ontario sales tax on inputs to our network infrastructure, such as switches, routers, cabling and towers, that wasn’t recoverable before.”

With harmonization, Bibic said Bell will be able to recover that tax and plow it back into its business, upgrading its infrastructure and purchasing more IT equipment from Ontario-based suppliers and resellers.

“It will be easier for us to invest, easier to engage in research and development and easier for us and other businesses to do business in Ontario,” said Bibic. “(Harmonization) translates into more opportunity for investment and jobs. It’s a good thing for Ontario, and makes us a more competitive jurisdiction.”

Bell expects the significant investments Bell plans to make in its broadband and WiFi networks will have significant spinoff benefits across the province’s IT sector.

“We’re a significant investor in the province,” said Bibic. “We’ll spent $1.5 billion (capex) in Ontario this year alone.”

Harmonization is also predicted to be beneficial for the IT channel by Audrey Diamant, a partner, indirect tax with PricewaterhouseCoopers in Toronto. With companies now able to write-off all the sales tax on a wider range of IT equipment, sales will likely increase.

However, Diamant added on a note of caution that channel partners should be prepared for a potential drop-off in purchase volumes ahead of the July 2010 implementation data, followed by a surge once the HST is in place.

“Vendors need to be aware that, as we get closer to the date, they could see a drop-off as customers wait for the HST to come on so their purchase costs will go down,” said Diamant. “Partners should consider providing incentives. It may be worth doing something to make sure demand doesn’t drop-off, and they should plan their revenue appropriately.”

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Jeff Jedras
Jeff Jedras
A veteran technology and business journalist, Jeff Jedras began his career in technology journalism in the late 1990s, covering the booming (and later busting) Ottawa technology sector for Silicon Valley North and the Ottawa Business Journal, as well as everything from municipal politics to real estate. He later covered the technology scene in Vancouver before joining IT World Canada in Toronto in 2005, covering enterprise IT for ComputerWorld Canada. He would go on to cover the channel as an assistant editor with CDN. His writing has appeared in the Vancouver Sun, the Ottawa Citizen and a wide range of industry trade publications.

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