On February 21, 2017, Minister of Finance Michael de Jong announced British Columbia’s 2017 budget. “Balanced Budget 2017” proposes the investment of over $3 billion over three years in “priority areas”, including education, infrastructure, childcare and youth program services, and housing initiatives. The budget also cuts Medical Services Plan (MSP) premiums by 50 percent for households with net incomes of $120,000 or less for 2018, and reduces the small business corporate income tax rate from 2.5 to 2 percent as of April 1, 2017. These changes will be partly funded by lower interest costs – to the tune of $500 million – as a result of the retirement of operating debt. The budget forecasts a surplus of $1.458 billion for 2016-17, with modest surpluses ranging from $223 to $295 million for the following three years.
Today’s budget contained only a few significant commodity tax changes, as summarized below.
Provincial Sales Tax (PST) Measures
Phase Out of PST on Electricity
In an effort to cut costs and improve competitiveness for businesses located in British Columbia, the budget proposes to phase out the PST on taxable electricity. The tax rate on electricity will be reduced to 3.5 percent from 7 percent, commencing on October 1, 2017, with electricity becoming fully exempt from PST on April 1, 2019. Note that electricity for residential use is already exempt from PST.
Carbon and Motor Fuel Tax Measures
Beginning on October 1, 2017, the 3 cent per litre tax on locomotive fuel will be eliminated for natural gas used in internal-combustion engines for any vehicles or rolling stock which run on rails. This exemption is consistent with other motor fuel tax exemptions available for natural gas used in ships and motor vehicles.
As required under the Carbon Tax Act, the government also reported that it achieved revenue-neutrality in respect of the carbon tax for 2015-16. Revised estimates indicate that provincial revenue reductions from personal and business tax measures exceeded the carbon tax collected by $539 million in 2015-16. In addition, the forecast for 2016-17 projects that personal and business tax reductions will exceed projected carbon tax revenue by $524 million. No changes were announced to carbon tax rates, which are currently at $30 per tonne of carbon dioxide equivalent emissions.
Tobacco Tax Measures
This year’s budget proposes to increase the tobacco tax rate per carton of 200 cigarettes to $49.40 from $47.80, effective October 1, 2017. The tax rate for fine-cut tobacco will also increase to 24.7 cents from 23.9 cents per gram, effective the same date.
Commission on Tax Competitiveness
In its 2016 budget, the government announced the establishment of a “Commission on Tax Competitiveness”, which recommended last fall that business capital expenditures, such as machinery and equipment, as well as the business use of electricity and other energy costs, software, and telecommunications should be exempt from PST. The Commission also recommended that British Columbia should consider adopting its own provincial value-added tax. It is from these recommendations that the province has decided to phase out the PST on electricity for businesses by April 1, 2019. While it remains to be seen whether any of the Commission’s other PST recommendations will be adopted by the province, the government has indicated that any significant changes to the PST will only be enacted after public consultation with residents.
Further information on British Columbia's 2017 budget may be found on the province's web site at: http://www.bcbudget.gov.bc.ca/2017/default.htm