TORONTO — Craig Bennett is sick of hearing customers threaten to take their roofing requests to under-the-table competitors and he believes business is only going to get worse for legit services now that the harmonized sales tax has officially hit in Ontario and British Columbia.
“There will be a thriving black market,” says Bennett, deputy director of Toronto-based Avenue Road Roofing.
“I think (the HST is) going to be wreaking havoc for people in the service industry,” he adds.
Bennett fears the HST, which merges the five per cent GST with the eight per cent PST in Ontario and seven per cent tax in British Columbia, will spur growth of the underground economy.
Employees have reported for weeks that rival roofing contractors have usurped their business by agreeing to tax-free under the table payments, as long as they are in cash, he said.
“Customers have asked our guys, ’are you willing to do something for cash?’ But of course we can’t, it’s not legal or legitimate.”
And while he says he obviously doesn’t endorse the actions of his competitors, he understands their reasoning.
“When you’re a small contractor and you’ve got to make your shiny new truck payments and keep your three or four men busy, you’ve got to make your revenue any way you can.”
Many business groups have thrown their support behind the new tax system, which will see them pay less tax because they will receive PST input credits, and save administration costs as they now must file a single tax form to the federal government.
The new tax system will attract about $47 billion in investment to Ontario, resulting in 591,000 jobs in 10 years, according to a report by economist Jack Mintz. His report on B.C. finds that province will see $11.5 billion in investments and 113,000 jobs by the end of the decade.
But service-oriented business owners are skeptical about any benefits because the HST will be attached to a host of their offerings — from home maintenance to massage therapy to tennis lessons — that were previously exempt from the provincial tax.
Stephen Dupuis, president of the Building Industry and Land Development Association, says the underground economy is already a huge problem in the renovation and home repair industries, but will grow even more when the HST comes in, just as it did when the GST hit in 1991, he says.
“It’s rampant and its going to get a lot worse,” he says. “That sector is just a natural sector for handymen and others to work for cash ... and people are unfortunately easily tempted by the lower price.”
“When you’re running a legit business paying all your bills .... and you get undercut on a job by some clown that’s working for cash, it’s frustrating.”
He says it will be difficult to attract customers now that an extra eight per cent, or seven per cent in B.C., will automatically be tacked onto the cost of home maintenance.
To be fair, he says, there’s about 2.6 per cent PST currently in the prices customers are currently paying, so the price actually goes up about 5.4 per cent in Ontario.
Hairdressers, massage therapists, and even bicycle shops have also expressed concern about losing business from customers who turn to under-the-table deals.
Julie Bischosf, part-owner of Denman Bike Shop in Vancouver, says she thinks it’s ridiculous that consumers will now have to pay more for bikes, while gasoline for cars is exempt from the tax in B.C.
That’s because B.C. already imposes a carbon tax on fuels, implemented a year ago. In Ontario, which doesn’t have such a carbon tax, motorists began paying the 13 per cent HST on gasoline and other fuel at the pumps Thursday.
Cyclists will even have to pay extra tax for safety measures such as helmets, and she thinks that could deter some consumers from buying them.
Bischosf also questions whether the new tax will fuel the already thriving underground bike economy, in which thieves steal bicycles and equipment off the streets and sell them at discounted, tax-free prices.
“I had a customer who came in the other day who had his bike seat stolen and he went into a bike shop down the street from us .... and the young man found his seat in a bin!” she says.
“I think people that would be inclined to do that will be more inclined to do that,” she adds.
Ontario Revenue Minister John Wilkinson says he’s not worried the underground economy will expand because businesses will only receive tax benefits if they comply with the law and charge sales tax.
“If they don’t do that, they don’t get the benefit of those tax reductions and consumers are left with no consumer protection and no recourse.”
He believes businesses will be reassured once they see their first tax filing that gives them an input tax credit of 13 per cent, rather than just five per cent GST returned.
However, some small businesses worry they’ll have to lower costs immediately, before their own costs come down order to attract business, which will still have the effect of driving customers underground.
“It’s going to take a bit of time for that to sort out for our business community and for our consumers,” he says.
“But we know that the market place will, in short order, reflect the new tax reality that sees our businesses having lower costs and, of course, businesses who want market share will pass those savings on to their customers.”