IMFG Paper | 2014

A Better Local Business Tax: The BVT

Local governments in Canada primarily tax local businesses through the property tax, often, as in Ontario, by applying heavier effective tax rates on business property. There are, however, better ways to tax local businesses. One such way is through a special type of value-added tax (VAT), called here the “business value tax” (BVT). This tax is distinctly different from the VATs already imposed by the federal government in the form of the Goods and Services Tax (GST) as well as similar VATs imposed by several provinces, such as the Quebec Sales Tax (QST), and the Harmonized Sales Tax (HST) used in Ontario and the Atlantic provinces. In recent years, several countries with VATs like Canada’s GST – notably Italy, France, and Japan – have introduced a local business tax along the lines of the BVT.

This paper makes the case for a local business tax. The BVT is better than the discriminatory and heavy real property taxes currently levied on businesses in Ontario and other provinces. Moreover, such a tax would be complementary rather than competitive to VATs like the GST and HST. The paper outlines briefly how a BVT works, shows how it differs from the GST/HST, and discusses the experience with BVT-like taxes in several countries. The paper concludes that a local BVT is economically preferable to other forms of local business tax, administratively feasible, and arguably politically desirable. Such a tax would be especially suitable for large cities and metropolitan regions.

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