The Honourable Wesley J. Sheridan, PEI’s Minister of Finance, Energy and Municipal Affairs, presented the province’s 2013 budget on March 27, 2013. The focus of this budget is on building a robust education system, enhancing health and social programs, and encouraging emerging sectors. The goal of the province’s “Three-Year Fiscal Plan” is a balanced budget, which is projected to occur in 2015-2016.
The budget proposed that the small business income tax rate will jump from 1% to 4.5%, effective April 1, 2013.
However, one of the key components in the government’s plan is the introduction of the Harmonized Sales Tax (“HST”) in the province, effective April 1, 2013. While admittedly “controversial”, PEI seems confident that this move will not only modernize the taxation system, but also draw more business investment into the province. It is estimated that the effective tax rate on new investment by medium and large companies will decrease drastically, encouraging the private sector to invest more.
The budget reminds taxpayers that, under HST, the sales tax rate will be 14% (i.e., 5% GST + 9% provincial component of the HST), compared to the 15.5% effective sales tax rate (combined GST and Revenue Tax, based on a GST-included value) currently in place.
As part of this strategy, the government has opted to introduce a system of refundable tax credits over and above the current federal compensation system already in place. This equates to up to $200 per year (starting in July 2013) for eligible residents. As well, point-of-sale rebates for the provincial component of the HST will apply to heating oil, children’s clothing and footwear, and printed books.
Although the provincial tax on gasoline will be reduced from 15.8 cents to 13.1 cents per litre, with the implementation of HST, the total provincial tax is estimated to be 23.9 cents per litre (which is still below the Maritimes average). There will also be adjustments to tobacco taxes. As of April 1, 2013, the sales tax increase due to the HST will be offset by tobacco tax reductions, bringing the total taxes to $45 and $35 on a carton of 200 cigarettes and 200 grams of fine cut tobacco, respectively.
Further information on PEI’s 2013 budget may be found on the province’s web site at:
Prince Edward Island Budget 2013-2014