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Canadians Fumble With Frustrating New Sales Tax

THE big shock on New Year's Day was the newspaper cost an odd number: 54 cents instead of 50. ``It's the GST, get used to it,'' said Gary Wallet behind the counter of his convenience store in Knowlton, Quebec. ``We haven't got the cash open yet because the cash register can't figure out this new tax.''

The Good and Services Tax, or GST, was born on Jan. 1 across Canada. It is a 7 percent levy on every good and service - with some exceptions such as groceries.

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The exceptions are ruled by bureaucratic fiat. There is no tax on unsalted peanuts; but salted peanuts cost 7 percent extra. One small package of yogurt is taxed; a six-pack is not. The reasoning is that the single yogurt is a take out food, and that is taxed. The six-pack counts as groceries, so there is no tax.

Until Jan. 1 there was no tax on clothes in Quebec, part of a provincial government effort to promote clothing sales in a textile-producing economy. Now there is provincial tax and federal tax to boot. In most cases it means a combined tax of 15.6 percent.

Quebec and Newfoundland are the only provinces that have harmonized their sales tax with the federal GST. In the other provinces, such as Ontario, clerks and restaurant waiters have to go through a tedious process of totaling up the provincial sales tax, then calculating the federal tax. To make it more complicated, the federal tax is levied on provincial taxes as well as the sales costs.

Across Canada there is confusion. On day one there were more than 10,000 telephone calls to a special GST hotline in Ottawa. Many Canadians crossed into the United States to shop during the first week of the year.

Tony Fargnoli, who runs a Montreal shoe store, says he will not pass the cost of the new tax on to customers, ``I'll eat the GST and keep prices the same.''

Because the tax replaces a 13.5 percent sales tax on manufactured goods, the new tax will make many such goods cheaper. Cars, for example. Both domestic and imported cars will drop in price by nearly 4 percent in most cases.

New houses will be taxed 7 percent; resale houses will not, although the sales commission - a service - will now be taxed. The theory is the old tax on goods penalized manufacturers; now services of lawyers, carpenters, etc. will be taxed.

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At first it was thought the new tax would generate the same income for the government - C$19 billion - as the tax it replaces. But it may bring in more, say economists, because it will catch people operating in the underground economy.

``With the GST charged on all my lumber I don't see how I can avoid the taxman,'' says a contractor who works in the cash economy and pays little tax.

Otto Jelinek, the federal revenue minister, would like to see any extra revenues used to reduce the large federal budget deficit.

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