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BC Businesses to Pay Additional $6.5B in Government-Imposed Costs Over Three Years: Report

British Columbia businesses are expected to pay billions in additional costs imposed by the provincial government over a three-year period, a report finds.

The report released by the Greater Vancouver Board of Trade (GVBOT) says it identified “significant” government-imposed costs that will chip away an additional $6.5 billion from the earnings of business owners between 2022 and 2024, after accounting for saving measures.

These costs include increases to corporate income tax, payroll tax imposed just prior to the COVID-19 pandemic, new paid sick leave, and the business portion of the escalating carbon tax, according to the report, titled “Counting the Costs: Assessing Economic Challenges for Businesses in British Columbia.”

Bridgitte Anderson, president and CEO of GVBOT, says small and medium-sized enterprises (SMEs) are already “disproportionately” impacted by higher interest rates and rising costs in the current economy.

With the additional billions in costs to shoulder, it will make it “incredibly challenging for [B.C. businesses] to grow and thrive,” she said in a news release on May 24.

Government-Imposed Costs

In 2017, the B.C. government lowered the small business corporate income tax rate from 2.5 percent to 2 percent effective April that year. However, it later raised the general corporate income tax from 11 percent to 12 percent, effective Jan. 1, 2018.

The report says though the reduction of small business tax rate saves SMEs some $279 million, the increase in the general rate costs much more to businesses overall.

“We estimate that the incremental revenue amounted to $371 million in added costs for businesses in 2022 alone and $1.6 billion over three years,” the authors wrote.

On Jan. 1, 2019, the province’s Employer Health Tax (EHT) came into force, requiring businesses with remuneration of more than $500,000 paid to employees to register for it.

Businesses with payrolls under $1.5 million are mandated to pay 2.925 percent on their total payroll over $500,000 while those with remuneration over $1.5 million are required to pay 1.95 percent on their total payroll.

For charitable and non-profit employers, the exemption amount is set higher, at $1.5 million, according to the province.

The report says the creation of the new payroll tax will increase costs for businesses by $4 billion during the studied period.

It also noted that the B.C. government had removed its provincial sales tax (PST) on electricity since 2019, which saves businesses about $594 million. However, the $594 million, together with the $279 million saved from the reduced small business tax rate, is insufficient to offset the $7.3 billion in additional costs over the three-year span.

The five-day paid sick leave required by businesses to provide employees since Jan. 1, 2022 cost at least $1.2 billion in total, the report said.

The cumulative increases in the carbon tax will cost businesses another $515 million by 2024.

On top of these costs, there has been a 21 percent increase in the province’s minimum wage rate from 2019 to 2023. Other significant increases include a nearly 10 percent hike in the top personal tax rate, a new statutory holiday costing $200 million, and a reversion back to the PST, which cost businesses about $3.7 billion in 2022, the report added.

‘Alleviate the Burden’

The GVBOT offered the province four recommendations to reduce the cost of doing business, particularly for SMEs.

One is to increase the EHT threshold for SMEs. Another is to introduce PST exemptions on business inputs such as computers, software, and equipment. The third is to reduce the provincial portion of commercial property taxes. The fourth is to recycle carbon-tax revenues into local tech and emissions-reduction efforts.

“To foster economic growth and stimulate investment in British Columbia, the provincial government must take action to alleviate the burden on businesses,” Anderson said.

“By implementing these recommended measures, we can create a more competitive and attractive business climate that encourages innovation, entrepreneurship, and economic prosperity.”

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