HST Compared and Contrasted To PST/RST

A Backgrounder Article

By L.Kenway BComm CPB Retired
This is the year you get all your ducks in a row! Start by starting ... and keep it simple. Consistency beats perfection.

Published May 9, 2026 | Originally published on Bookkeeping-Essentials.com in 2010

WHAT'S IN THIS ARTICLE
Introduction | HST Is Not Simply PST By Another Name | Compare And Contrast | What The Policy Discussion Revealed | So Which Taxation Method Is Better?

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Solopreneur reading about Canadian sales taxes

Two taxes. Different structures. Different effects on your business.

Understanding the difference between these two types of tax helped my bookkeeping. I thought a short discussion of the two different taxation methods would also help small business owners and bookkeepers specializing in small businesses understand how these sales taxes work differently.

This backgrounder addresses two related questions: how HST differs structurally from PST, and what the policy debate revealed about the two systems. The two questions are treated together because they are really the same question approached from different angles.

HST Is Not Simply PST By Another Name

The two taxes have different objectives and, therefore, different effects.

GST/HST is a value-added tax (VAT). It applies to final consumption of goods AND services. It increases the price of most goods and services to the end consumer. However, it is neutral to businesses because suppliers can claim an input tax credit to offset it against GST HST charged on sales. It is a visible tax, not a hidden tax.

PST/RST is a retail sales tax. It is also aimed at final consumption of goods AND some services, but it does not work like a value-added tax. In practice, it can become a cost to businesses along the supply chain. When that happens, the tax can end up embedded in the selling price.

That difference matters.

With GST/HST, the consumer is still the one intended to bear the tax. With PST/RST, tax can stick inside the cost structure of the business before the product or service ever reaches the customer. That is one of the key reasons HST is a different tax than PST, not merely the same tax wearing a different label.

If you'd like more background first, see What is GST/HST? What is VAT?

Compare And Contrast GST/HST To PST/RST

Even after B.C.'s 2011 referendum and the reimplementation of PST in April 2013, there was still plenty of discussion about whether HST was a good tax, a bad tax, or whether people were for or against it or just wanted to maintain the status quo. I can understand that. Sales taxes feels personal because we feel the impact of them every day, whether we can see the tax or not.

Still, when you compare the two systems, a few differences stand out.

1. Consumer Spending Versus Business Spending

GST/HST is a multi-stage tax designed to prevent double taxation and tax cascading. PST/RST is a single-stage tax, but it can still end up taxing business inputs, which creates double taxation and tax cascading. Let me explain.

Double taxation happens when a business pays PST/RST on the goods or services it buys, and then charges PST/RST again when it sells its own goods or services. In effect, the product is taxed twice.

Tax cascading happens when the business owner raises the selling price to recover that embedded PST/RST cost. The tax becomes part of the price, and then more tax may be charged on top of that price later in the chain.

That is one of the biggest structural differences between GST/HST and PST/RST. GST/HST is meant to tax consumption. PST/RST ends up taxing both business spending and consumer spending.

2. Neutrality

Another difference is neutrality.

GST/HST taxes all types of properties (goods) and services in the same way, so it does not influence or favour one industry over another. PST/RST, on the other hand, taxes property and services differently, which discriminates between industries and sectors.

Professional services used to be a good example in B.C. Legal services have to charge PST, while accounting services did not. HST levelled that playing field because all professional services were brought under the same value-added system. When B.C. returned to PST, the taxation for professional services reverted back to pre-HST days.

Interestingly, that will be changing in October 2026 when PST will also be levied against accounting services. That includes bookkeeping, tax, assurance, and accounting services. It will also apply to architectural, engineering, security services, and rental property / strata management.

That sort of uneven treatment matters more than it may first appear. A tax system works better when it distorts behaviour less. The broader and more even the base, the less it nudges consumers and businesses to make decisions based on tax rather than on what actually makes sense.

As Frances Woolley said in Comparing the HST with retail sales taxes, "Basic micro-economic analysis suggests that a tax on two goods at a lower rate is better than a tax on one good at a higher rate. ... If only goods are taxed, people's choices are distorted by the tax, and they will substitute services for goods, for example, going out to restaurants more often rather than buying a new food processor to make meals quickly and easily at home. However if both goods and services are taxed equally, people's consumption choices aren't distorted – there is no substitution effect. This means that people can achieve a higher level of utility – get on a higher indifference curve – while the government can raise the same amount of tax revenue."

3. International Competitiveness

GST/HST removes tax from capital purchases and export sales through the input tax credit system. That can improve productivity and competitiveness.

PST/RST does the opposite. When PST/RST becomes embedded in business costs, it raises the domestic selling price. That can make businesses less competitive, especially in export markets.

I understood this to mean that GST/HST can help productivity and investment because it does not bury unrecoverable sales tax inside capital costs the same way PST/RST can. PST/RST, by comparison, can put businesses at a disadvantage in both domestic and international markets.

That concern showed up clearly when Ontario moved to HST. B.C. faced a real risk that businesses and jobs would migrate to Ontario, where double taxation and tax cascading would disappear under a value-added system while B.C. stayed behind with PST.

What happened next is worth understanding, not just as history but as a lesson in how tax policy actually gets decided.

The B.C. Liberals won the May 2009 election without mentioning HST. Within months, the Harper federal government offered provinces significant transition funding to harmonize, a substantial incentive tied to a broader goal of improving Canada's economic competitiveness. Had the timing been different, HST might have survived. Instead it looked like a bait and switch, even though the federal offer came after the election, not before.

Former Premier Bill Vander Zalm used a book tour to lead a campaign against the tax. The economics were contested but the politics were not. Voters who could not see the hidden costs already embedded in PST prices could very clearly see a new tax with a new name. The Liberals, wary of being seen as using government resources to market a policy they were already under fire for, held back from making the case aggressively. They eventually agreed to reduce the HST rate but chose to do it gradually rather than immediately.

Most analysts concluded afterward that an immediate two point cut would have changed the outcome. Ten percent HST against twelve percent combined PST and GST is a difference voters can feel. Twelve percent against twelve percent is invisible, and invisible savings do not win referendums.

The province voted 55 percent against HST in 2011 and had to repay $1.6 billion in federal transition funding, which hit the 2012 budget hard. It remains a textbook case of an economically defensible policy lost to a communications failure, and a reminder that tax policy is rarely decided on economics alone.

What The Policy Discussion Revealed

David Robertson, a tax lawyer with EY Law LLP, presented a paper in September 2005 at the CICA Commodity Tax Symposium titled Sales Tax Harmonization: The Facts & Nothing But The Facts.

The paper concluded that VAT wins when compared to RST:

"As to the choice between which system is better, it is clear that the value-added tax system is superior as it (a) is more equitable, (b) less regressive, (c) minimizes cascading and double taxation, (d) promotes international competitiveness and domestic prosperity, and (e) is less susceptible to evasion."

I think that quote nicely sums up why HST is a different tax than PST.

When B.C. reimplemented PST, the competitiveness concern did not end there. A Vancouver Sun article from September 2012 titled Panel calls for PST relief for businesses in B.C. outlined findings from the Expert Panel on B.C.'s Business Tax Competitiveness. The panel recognized that the higher costs businesses would bear under PST would be passed on to consumers, and that businesses with a choice about where to invest would likely look elsewhere.

To reduce that risk, the panel recommended an investment tax credit claimable over two years to level the playing field with other provinces. They also recommended widening the PST base by adding phone and cable services, school supplies, and snack foods, and increasing tobacco taxes. A half-percent rise to corporate tax rates was proposed on the reasoning that it is better to tax profits than investments. A Business Transfer Tax was introduced as an idea but was not expected to gain traction given that it was an election year.

The competitiveness problem did not resolve itself in the years that followed. The Fraser Institute's 2019 report Assessing British Columbia's Tax Competitiveness found that B.C. faced significant tax competitiveness issues, particularly around the tax treatment of business inputs under PST. Those pressures were compounded by a series of additional tax increases introduced by the provincial government, including higher corporate income tax rates, higher personal income tax rates, an increased property transfer tax, a new payroll tax to fund health services, and a carbon tax rate that had reached the highest level in North America. Together these measures added to the cost of investing in the province and reinforced the structural disadvantage that comes with a provincial sales tax on business inputs.

The points made are from my notes on Mr. Robertson's paper Sales Tax Harmonization: The Facts & Nothing But The Facts. His paper was presented in September 2005 at the CICA Commodity Tax Symposium . This paper is no longer available online.

So Which Taxation Method Is Better?

You decide.

In general, VATs are not selective in what they tax. The purpose of a sales tax is to raise revenue. Value added taxes do not distort consumer behaviour because they apply broadly and evenly, making them less damaging to the economy. So for me it is the winner. I prefer consumption taxes to income taxes.

PST/RST distorts consumer behaviour because it is not applied evenly and is often hidden, so the consumer may not realize they are paying more for a good (or possibly a service) than if HST was in place.

Understanding this difference made sales tax bookkeeping make more sense. And once the bookkeeping makes more sense, the tax system starts to feel a little less mysterious too.