Originally Published in the January/February 1992 issue of The Outfitter Magazine.
The Impact of the GST on Northern Ontario Tourism
Editor’s Note: The following position paper was submitted by NOTO to the Honourable Tom Hockin, Minister of State for Small Business and Tourism, in Ottawa on Thursday, November 7, 1991, It was prepared by Bud Dickson, then Vice-President of Finance, with input from other NOTO members.
The membership of NOTO, and most operators within the tourism industry, strongly believe that the impact of the GST has produced extremely negative ramifications for tourism in this country. Canadian operators are competing globally in “one-on-one” marketing campaigns and their marketing edge is rapidly diminishing with the many inhibiting factors imposed on them. The GST initiative was the most severe hardship and has proven to be very distasteful to our guests visiting Canada.
While quality and service are still of paramount importance, the state of the global economy dictates that people must spend their dollars more carefully. Canadian tourist operators need incentives to entice people to visit this country - not deterrents.
The strong Canadian dollar has been another factor in visitor decline. Previously, the positive exchange difference was a definite incentive. We must endeavour to keep our rates competitive with our U.S. counterparts, while paying higher costs for goods and services. Then, we must charge an additional 7% GST on their package vacations, give them a form to complete and explain that they may, or may not, receive a rebate on the accommodation portion of their vacation.
NOTO would like to focus on the viable alternatives to the rebate system or assist the Federal Government in redefining “accommodation” and broadening the goods and services that can be rebated to visiting guests.
We will begin by identifying a few of the major problem areas;
PROBLEMS
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CURRENT SYSTEM: The rebate is unacceptable in its present form. Our members have been inundated with complaints from guests that their rebate requests have been denied, that they stood in line for hours at “Duty Free” stores to receive their rebates and that, in general, they do not relish the hassles and mechanics of the system.
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INEQUITIES: The rebate system applies to “roofed accommodation” only. Many of our operators offer “World Class” services in the areas of houseboat vacations, canoe packages and backpacking adventures. These packages include “high-tech” equipment and food that the guests must prepare for themselves. They also command a “top dollar” package rate. Operators offering these services are penalized for this influx of money into the Canadian economy. Currently, none of these packages qualify for a GST rebate. One example is a High School Youth Group who paid $835.00 in GST in addition to the usual provincial sales tax. They were not entitled to receive a rebate because they were on a canoe package. The group leader commented that the money spent on GST would have bought a lot of gasoline.
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FOREIGN BASED COMPETITORS SHARING CANADIAN RESOURCES: Canadian operators located in areas where they share our resources with our neighbours in the south are at a significant disadvantage. A few examples are: Lake of the Woods, Rainy Lake, Quetico Provincial Park and the Great Lakes. American Plan resort guests based in Minnesota can fish in Ontario and avoid the GST; houseboat operations in International Falls have a decided advantage over their Canadian counterparts in Fort Frances , Ontario, because their guests all use Rainy Lake as a destination - again, they avoid the GST; Fly, Crane Lake and Grand Maris, Minnesota, all have access to Quetico Park. Their guests enter the Quetico from their U.S. base of operations or they fly-in or drive-in to a northern access located in Ontario. In all cases, their guests avoid the GST on their vacation packages and are not even charged duty at the border crossing. There are many similar scenarios across the country.
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MARKETING: Foreign companies will capitalize on the GST as a negative marketing opportunity. The image of the GST is becoming increasingly more tainted and most NOTO members feel that 1992 will be a very difficult one for marketing at Sport Shows and other venues.
There was significant misunderstanding of the rebate system last season and most tourists expected to receive a full GST rebate on their vacation packages. Since this was definite misconception, our tourist operators expect to see an overwhelming decline in visitors over the next year.
A woman from the U.S. who visited Canada last summer wrote a letter of complaint to the “New York Times” that was reprinted in the “Toronto Globe & Mail”. She reiterated this expectation and pointed out that she would not be returning to Canada until the GST has been repealed! Both the perception and the reality of the GST are creating the greatest challenge that the tourism industry has ever had to deal with.
Moreover it appears that the GST is encouraging those tourists who wish to visit Canada to bring along all their own food and equipment. Although a “package vacation” contributes more dollars to the economy and a quality service for visiting guests, it doesn’t make sense to pay an additional 7% for goods they can purchase at home at a much lower cost.
One clear example is unprepared food. When food is provided on a package canoe trip, a houseboat vacation, or a fly-in outpost package despite the fact that visitors must prepare their own food, they are charged the GST. Conversely, if they purchase food in the U.S. they do not have to pay GST nor do they have to pay duty at the border.
A family from Chicago chose to have food included in their outpost package and prepared the food while they were at their remote location. This addition to the package increased the cost and they paid approximately $500.00 in GST. Although the accommodation portion of their GST was eligible for a rebate, the greatest portion of the package was not. Needless to say, they will be supplying their own food and bait next season.
POSSIBLE SOLUTIONS
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NOTO recommends that the Federal Government eliminate the “Rebate System” and give a special exemption to guests registered at a wilderness vacation establishment: a flat GST rate of 2%. There would be no rebate necessary, which would alleviate customer frustration and rebate inequities. Further, this would provide an excellent marketing opportunity for “progressive” operators. The operator could offer to pay the GST for his guest as a sales incentive. This incentive would only be possible with a low GST rate of 2%
Most guests registered at Canadian tourist establishments pay for the following goods and services as part of their “Wilderness Vacation Package”:
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food (prepared, unprepared)
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accommodation or shelter (various forms - cabin, tent, outpost, houseboat, etc…)
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float plane service
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guides
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boats, motors and gas
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canoes
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bait
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houseboats
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licenses and permits
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NOTO recommends, as an alternate solution, that the Federal Government continue the rebate system with the following modifications;
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Broaden the term “accommodation” and designate it as “shelter”. This would include houseboats and tents.
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Zero rate the following: transient accommodation (shelter), rental of recreational equipment, float planes/vehicles, unprepared food and guiding services.
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Allow the operators to refund the GST directly to their clients and then apply for the rebate themselves. This would assist in eliminating the long lineups, completion of forms and refusals that have initiated growing frustration among tourists.
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CONCLUSION
In summary, either one of these solutions would go a long way toward solving some of our industry’s problems. The proposed solutions would enable Canadian operators to be more competitive, as well as encourage Canadians to travel within their own country. In addition, the paperwork jungle that is created by the rebate system would be eliminated. Moreover, these alternatives to the present system would go a long way in helping the operators make their guests happy who are currently very disgruntled with the rebate system.
It has been an extremely difficult year for our industry. We can not endure another year of disillusioned tourists. It is imperative that positive action be taken before we begin traveling to promote our next season. We can not afford our markets to be eroded any longer by the negative publicity that this tax has generated.
There is a recognized formula in the marketing world called the “3-11 Theory”. Customers who receive a good experience might tell three people about it, but those who have a negative experience will tell at least eleven others. Together we can find a solution to help our operators make the experience of their customers more positive and one that they will share with at least three others.
We urge you to help our industry by taking immediate action on this issue.
