Bill C-342 - Cost of Carbon tax deduction from GST

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Bill C-342 - Cost of carbon pricing deduction from GST.pdf

The carbon tax or levy is a direct pricing mechanism which is applied at downstream levels and is included in the final price of products, such as diesel, gasoline, natural gas and propane. Taking into account the fact that the carbon tax affects the final price directly, the GST portion of the projected tax/levy revenues could be an approximation of the federal financial benefits from these carbon prices in B.C. and Alberta.

A carbon pricing system based on the Cap & Trade system in Ontario and Quebec is applied at the upstream level of the production of goods and services. In general, the provincial government creates and distributes emission quotas through an auction.  Numerous industrial and commercial companies are required to purchase certain emission rights to continue the supply of their goods and services. Hence, the unit production cost for these companies will likely increase. The cost of the pollution right (the auction price) fee could be “passed through” to the final consumer of the product through an increase in the sale price.

We consider these two systems to estimate the cost of excluding tax, duty or fee imposed by a province in respect of carbon from the calculation of the GST. The PBO has also used various methodologies to estimate a range of carbon pricing deduction amounts from GST for two fiscal years. 

The total amount of GST collected on carbon pricing in the four provinces is anticipated to be between $236 million and $267 million in 2017-18 and between $265 million and $313 million in 2018-19.

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