Value Added Tax (VAT) in Canada

By: EconomyWatch   Date: 29 June 2010

About The Author

EconomyWatch

The core Content Team our economy, industry, investing and personal finance reference articles.

EconomyWatch, Content Team

 

  • Dot Div
  •      



Value added tax in Canada is known as Goods and Services Tax. The goods and services tax was introduced in Canada on the 1st of January 1991. It was introduced by Brian Mulroney, who was the Prime Minister at that time and Michael Wilson, who was the finance minister. The goods and services tax in Canada replaced the manufacturers' sales taxes. The main purpose behind introducing the goods and services tax was that the manufacturers' sales tax was having a negative impact on the export prospects of the manufacturing sector in Canada. The manufacturers' sales tax was hidden and the rate of taxation was 13%. The goods and services tax could be called a multi-level tax.

The introductory rate of the value added taxes in Canada was 7%. At present the rate is 5%. In Canada the value added taxes are taken along with the sales taxes that are applicable for the particular provinces.
The only exception to this is the province of Alberta. There are no sales taxes at the provincial level in Alberta. In provinces like New Brunswick, Nova Scotia and Newfoundland a Harmonized Sales Tax is charged.

The Harmonized Sales Tax is a combination of goods and services tax and the provincial sales tax. The rate of the goods and services tax is 5% and the provincial sales tax rate is 8%. This means that the total harmonized sales tax collected in the three above mentioned provinces is 13%.

There are certain items that are regarded as being zero rated under the value added taxation system in Canada. The items are basic groceries, outbound transportation, prescription drugs, medical devices and inward transportation. The export of certain goods and services are also regarded as being zero rated. The value added taxes of Canada have helped in the increase of the efficiency of the Canadian economy.

blog comments powered by Disqus