Trudeau GST break to relieve retailers, but will also create logistical headaches, industry observers say

A sales-tax break coming in mid-December could help to stimulate holiday shopping among inflation-weary consumers, but will also create logistical headaches for retailers, industry representatives say.

 

Prime Minister Justin Trudeau announced on Thursday that as of Dec. 14, the federal goods and services tax will be paused for two months on a long list of items – including print books; children’s toys and clothing; diapers; Christmas trees; restaurant meals; grocery items that are not already tax-exempt such as snacks and party platters; and beverages such as pop, beer and wine.

 

“Consumers are feeling the pinch. This is definitely going to help,” said Peter Mammas, president and chief executive officer of Montreal-based Foodtastic Inc., which owns a number of restaurant franchises such as Milestones, Freshii, Quesada and Second Cup.

 

Mr. Mammas has noticed customers cutting back on some purchases, for example by bringing their own lunches to work or opting to eat at home. He expects that a reduction on restaurant bills will provide the relief that could persuade people to step out more often.

 

That is a hope that is echoed across the industry at a crucial time of year. “Not all retailers will benefit, because their goods may not be exempted from GST. But Canadians having more money in their pockets overall, for spending, is good for the retail sector,” said Matt Poirier, vice-president of federal government relations with the Retail Council of Canada.

The lingering effects of high inflation and interest-rate increases in recent years have continued to affect Canadians’ spending habits. People are forgoing non-essential purchases, and buying products on discount more often.

 

“Retailers have really been leaning into promotions to get people in the store to get shopping,” Mr. Poirier said. “So this comes at a great time to help stimulate that.”

 

The period in January after the holidays also tends to be the quietest for retail sales, and the industry will be watching closely to see whether tax-free shopping will provide an incentive to shoppers.

 

But while it could be good news for retailers, the temporary tax holiday also presents logistical challenges. For example, retailers are responsible for entering prices into their payment-processing systems, meaning that stores will have to reconfigure those systems, twice within a two-month period, to change which items are taxed.

 

“You’re talking about thousands of items that are going to have to be reprogrammed. That’s going to be a big job,” said Gary Sands, vice-president of government relations with the Canadian Federation of Independent Grocers.

 

Mr. Sands added that his members welcomed the news overall, saying the change would be particularly helpful over the holidays on items related to entertaining, such as beer and wine, snack mixes and food platters. He also said the change could lead to a larger conversation about whether certain food items should be permanently tax-exempt, as are other groceries.

 

“I think a lot of pressure for that is going to come from consumers, once they’re used to not paying tax on this,” Mr. Sands said. “… And I think it will put more pressure on government to justify why these products need to be taxable.”

 

The changes could also lead to some tensions at checkout aisles, as customers who may not be familiar with the details of the tax holiday ask for explanations about which products apply and when the changes take effect.

 

Dan Kelly, president and chief executive of the Canadian Federation of Independent Business, said that the temporary change would provide only limited relief.

“We would rather see a reduction in the small-business corporate tax rate, or employment insurance rates, and certainly a freeze of the carbon tax. Those would have a bigger economic impact on the economy and small business,” Mr. Kelly said.

 

Another pressing question is whether the Canada Revenue Agency will exercise discretion in penalizing business owners for mistakes that will “undoubtedly” occur, he said.

 

“I’m hoping that they’re going to be very, very caring and compassionate, and not come down on businesses for making mistakes, especially given the temporary nature of this,” Mr. Kelly said.

 

“I will light my hair on fire on the steps of Parliament if we start getting a bunch of calls in March from businesses that have been given penalties for misapplying the GST holiday.”

 

 

 

 

This article was first reported by Globe and Mail