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Retail group urges Ottawa to cut taxes for tourists

BANFF, AB - SEPTEMBER 3:  Banff Ave. Downtown Banff on September 3, 2014 in Banff, Canada. (Photo by Santi Visalli/Getty Images)
A group of Canadian retailers is calling on the government to introduce a tax refund program for international visitors. (Photo by Santi Visalli/Getty Images)

A group of Canadian retailers is calling on the government to introduce a tax refund program for international visitors, a move it says will help increase sales and stimulate the economic recovery of the tourism sector. The group – which includes the Retail Council of Canada, Aldo Group, Birks Group, Harry Rosen, Hudson's Bay Co., Cadillac Fairview, Quadreal Property, Global Blue and Triple Five – submitted a proposal for a Visitor Tax Refund (VTR) to the federal government this summer as part of the consultations for Ottawa's Tourism Growth Strategy.

The group says it wants the government to allow international tourists to reclaim the Goods and Services Tax (GST) and provincial sales taxes on purchases made while visiting the country, saying the rebate would "boost both the number of visitors to Canada and the amount of money spent by those visitors."

"The international context and the closing of borders have exacerbated an already serious issue of declining tourist spending in Canada. Every opportunity must be taken to stimulate the Canadian economy," Jean-Christophe Bedos, president and chief executive of the Birks Group, said in a statement released on Tuesday.

"This program would greatly benefit the tourism sector, retailers, and the Canadian economy in general, as it faces unprecedented economic challenges."

While international tourism to Canada increased in 2022, it is still below pre-pandemic levels, even amid a surge in global travel demand. According to Statistics Canada, international residents made 2.8 million trips to Canada in July 2022, 10 times more than during the same month in 2021. While that was a significant increase from the previous year, it amounted to just over half (57 per cent) of the trips taken by international visitors in July 2019.

Statistics Canada also says that the share of tourism demand from non-residents fell in the first quarter of 2022 to 14.2 per cent, below the 18.1 per cent recorded in the first quarter of 2020, which included the start of the COVID-19 pandemic. Prior to the pandemic, non-residents made up approximately 26.8 per cent of total tourism demand in the country.

The group of retailers says there has been an ongoing decline in per-capita tourist spending since 2007, when the federal government at the time cancelled a previous visitor rebate program.

"A 5 per cent decline in this sector over the past seven years was a marked contrast to competing jurisdictions such as the European Union, United Kingdom, or Japan, which has seen a 23 per cent increase in spending since its program was implemented in 2012," the group said.

Canada previously implemented a Visitor Rebate Program in 1991, when the GST was first introduced. The program was scrapped in April 2007, making Canada the first OECD country at the time to cancel such a policy, according to analysis from the Retail Council of Canada. The government at the time said there were excessive costs to administer the program, and that cancelling it would save Canadian taxpayers $86 million annually.

The RCC conducted an analysis of the scrapped program in 2018 and found that while the government did save money on administrative costs, it also lost $139.7 million per year in revenue, resulting in a net loss of $51.6 million per year due to the elimination of the rebate.

Bedos said in an interview with Yahoo Finance Canada that the visitor tax rebate would make Canada more competitive when it comes to vying for international tourism dollars.

"Most of the countries that have a system like this have data showing that tourists ...tend to stay on average one extra day to do shopping, and that makes a big difference not just for retail, but the hotel industry and food and beverage industry," he said.

"It's a missed opportunity for Canada."

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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