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The impact of sales tax reform on Ontario consumers

16 Mar 2011

On the basis of the consumer price data, I estimate the overall effect of OHST so far on the cost of living in Ontario, and on the distribution of after-tax real income of Ontario families. [...] DETAILS OF THE HARMONIZATION IN ONTARIO The reform’s centrepiece is the harmonization of the base for Ontario’s sales tax with the five percent federal GST, with the two taxes levied together at a combined 13 percent rate, collected by the federal Canada Revenue Agency, with the provincial portion of revenues remitted from the federal to the provincial government. [...] The result is that only value added at each stage of the production process is subject to tax and, in principle, the VAT is equivalent to a tax on sales to final consumers alone.5 A significant benefit of VAT, and the primary motivation for the Ontario reform, is therefore the removal of embedded input taxes from production costs.6 Analysis of Statistics Canada’s input-output data for Ontario sugg [...] As well, the divergence could reflect price changes that are common to both provinces but which are weighted differently in the two provinces’ CPI baskets.10 To establish the true impact of harmonization in Ontario, the more detailed analysis in the next section of the paper examines price changes only for those subcomponents of the CPI basket for which tax rates are known to have changed, as list [...] Table 2 reports price changes for 16 subcategories of CPI for which provincial data are available, which together comprise all of the OHST tax changes listed above.12 Analogous to the information presented graphically in Figure 1, the rightmost six columns of the table report the cumulative change in average prices in Ontario from June to each month following the reform, minus the corresponding pr
government politics retail economy taxation inflation business consumer goods consumers consumer price index government policy payments prices sales tax transport vat tax government budget tax rate taxes price goods and services tax household income in the united states harmonized sales tax levied government finances hst gst goods and services tax (australia) input tax credits

Authors

Smart, Michael

Pages
23
Published in
Canada

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