Pubdate: Thu, 18 Jun 2015
Source: Vancouver Sun (CN BC)
Copyright: 2015 Postmedia Network Inc.
Contact:  http://www.canada.com/vancouversun/
Details: http://www.mapinc.org/media/477
Author: Barbara Yaffe
Page: D3

B.C.'S UNDERGROUND ECONOMY THRIVING

Taxation: Unregulated Transactions Are Placing Extra Burden on 
Regulated Business

Have you ever paid a plumber under the table? Purchased pot from one 
of Vancouver's proliferating marijuana dispensaries? Neglected to 
report rental income from a basement suite?

Such activities typically sidestep taxation, contributing to an 
underground economy that the Business Council of B.C. believes is 
especially active in the province.

"We believe that unobserved, unreported and untaxed economic activity 
is more prevalent in British Columbia than in the country as a 
whole," say council chief policy officer Jock Finlayson and chief 
economist Ken Peacock.

They contend B.C.'s underground economy could be equivalent to 10 per 
cent or more of reported GDP.

It is not so much that British Columbians are more dishonest or 
tax-averse than other Canadians. They just have greater opportunity to cheat.

"Our economy is heavily skewed toward self-employment and 
unincorporated small business, where unreported transactions are more 
common," explains a report, issued recently by the council.

Also, home building and renovating are big business in B.C., more so 
than other provinces, and the construction industry happens to be the 
No. 1 sector for underground activity.

And, of course, B.C. has a sizable illegal drug industry, accounting 
for billions of dollars each year in cash-only, unreceipted transactions.

It is noteworthy that while Lower Mainland municipalities try to 
regulate pot dispensaries, no one is talking about how to make buyers 
and sellers pay appropriate taxes.

By Statistics Canada's count, two other provinces with relatively 
high levels of underground activity are P.E.I. and Quebec.

The national agency, in its analysis, tends to arrive at lower 
percentages when estimating the informal economy because it excludes 
activities such as drug dealing, prostitution and white collar crime.

Accordingly, it has found B.C.'s underground economy represents just 
2.7 per cent of its economy.

Over the past 20 years, various StatsCan studies have put countrywide 
underground activity at between 2.3 per cent and 5.2 per cent of GDP; 
or between $45 billion and $100 billion annually.

The problem is hard to quantify - by its nature, transactions 
involved are unreported and deliberately hidden.

And, it seems, everyone measures it differently.

A 2010 World Bank report, using a more comprehensive measure of 
underground activity, put Canada's hidden economy at 15.7 per cent of 
GDP, placing the country in the middle of a pack of advanced 
industrialized economies. By contrast, eight per cent of the Swiss 
economy and 30 per cent of Greece's GDP are believed to be hidden.

Paying cash to a handyman or getting hold of "cheaper" cigarettes may 
not seem like venal activities.

But, in a hidden economy, health standards often get ignored, as do 
labour laws and other administrative procedures, contributing to a 
weakening of "regulatory regimes intended to protect consumers, 
workers and the environment," says the business council.

And, naturally, those who do not pay their share of taxes push a 
greater burden onto those who do.

They also make it tough for suppliers and business people who pay 
their taxes to compete on price.

And yet, people sometimes turn a blind eye to the scofflaws, in part 
because the taxman is viewed as having horns. And because almost 
everyone can remember an occasion in which they themselves indulged 
in a little taxation hanky-panky.

The council believes governments need to become more activist in 
combating the underground scourge, starting with developing a better 
understanding of its size.

B.C.'s Finance Ministry, reacting to the business council's spotlight 
on the topic, reports it recently participated with the Canada 
Revenue Agency in an "underground economy roundtable" to improve 
intergovernmental efforts to catch tax cheats.

The ministry reports it deploys an investigations unit focusing on 
tax fraud and sales tax evasion.

And, since renewing the PST, B.C. has established a new sales tax 
audit program which last year carried out 7,413 audits, netting $39 
million in additional revenue.

It is an uphill battle.
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MAP posted-by: Jay Bergstrom