By Dale Barrett – Managing Lawyer at Barrett Tax Law and Tax Columnist at the Lawyer’s Daily. Originally published by the Lawyer’s Daily.

In my first article in this series, I expressed the opinion that the entire Harmonized Sales Tax system and its legal framework are fundamentally flawed. I outlined four of the nine problems with HST to help illustrate why it should be abandoned. Here are the remaining problems.

5. It has opened the door to various HST scams.

There are many tax scams that involve the HST. If the HST didn’t exist, neither would any of these scams:

• The Missing Trader HST Scam: This tax scam has arguably cost the federal government billions of dollars. In this particular scam, organized crime gangs and other fraudsters charge HST on products and services which are legitimately sold to purchasers. These fraudsters, in turn, abscond with the HST and never submit it to the Canada Revenue Agency.

• The Gold Bullion HST Scam: This scam has two parts and involves missing traders. HST must be paid when scrap gold is bought from commercial suppliers but not from the public. Scrap dealers buy gold from the public and say that they bought it from gold dealers which may or may not exist. The scrap purchasers claim an Input Tax Credit (ITC). They, in turn, get an HST refund and they melt the scrap to bullion. Others, in turn, buy the bullion back (not subject to HST), and then they salt it down to below 99.99 percent. It is now scrap. They sell the scrap to other parties and collect the HST and abscond with it. The gold keeps moving through the cycle from scrap to bullion to scrap. HST disappears in each cycle.

• Fraudulent HST Returns: When an unscrupulous business needs cash it is easy to get it: just file a fraudulent HST return and get a tax refund. There was a recent news story about unscrupulous business people in Nova Scotia who were charged with 10 counts of fraud. They are accused of filing HST returns which involved fake expenses including one for $117,850 for services by Vandalee Industries (remember Seinfeld?).

6. HST takes billions from taxpayers by making goods and services more expensive.

As noted in Wikipedia, on May 4, 2011, an independent panel commissioned by the British Columbia government released a report on the impact of the HST in that province. The report concluded that “Unless you are among the 15 per cent of families with an income under $10,000 a year, you’re paying more sales tax under the HST than you would under the PST/GST: On average about $350 per family.” B.C. then cancelled the tax.

• In Ontario, the HST increased tax on gasoline and diesel from five per cent to 13 per cent.

• Many other products such as fast food have become much more expensive. It used to be that fast food purchases in Ontario under $4 were not subject to PST. Now they are all subject to HST.

• New homes have become more expensive because of the application of HST. And the rebates in place to offset the additional taxes do not come close to negating the effect.

• Ontarians are paying more for management and other fees associated with mutual funds, segregated funds and ETFs.

7. HST rebate system is misunderstood and complicated.

HST rebates, which were supposed to help offset HST on new homes are being denied regularly. Plus, the CRA has opportunistically taken advantage of this confusion and many people who received the incorrect rebate (but would have qualified for the other had they applied on time) have their new home rebates clawed back just after the deadline passes for applying for the rental rebate. These people get no rebate and the CRA gets their money back.

8. Export businesses are prejudiced.

Export businesses routinely have enormous amounts of their capital tied up in HST. Their cash flow and ability to conduct business are seriously affected as they are routinely forced to wait for HST refunds for months and even years. Sometimes they have to object and go to tax court or are forced to endure expensive HST audits to recover their money.

9. HST audits are a drain on government and private resources.

HST has required a whole new kind of trust audit to come into existence. This has caused the CRA to hire countless HST auditors with the price tag of hundreds of millions per year. This waste of government resources in turn wastes taxpayer resources to be compliant with and challenge poorly done tax audits. In turn these audits clog tax courts, cost the Department of Justice hundreds of millions in legal fees and directly cost taxpayers billions of dollars in fees to tax lawyers, court application fees and reassessments which are too small to challenge and which are just paid.

There is simply nothing good about the HST. Isn’t it time that the rest of the country follows B.C.’s lead and repeals it?

This is the second of two articles. Read the first one here.

Dale Barrett is the managing partner of Barrett Tax Law, founder of Lawyers & Lattes Legal Cafe, author of Tax Survival for Canadians and the editor of the Family Law and Tax Handbook. He is also a frequent tax lecturer, primarily for accountants.