April 7, 2018
The Honorable Wayne Easter
Chair, Standing Committee on Finance
Sixth Floor, 131 Queen Street
House of Commons
Ottawa ON K1A 0A6
Canada
Dear Mr. Easter,
On behalf of the Tourism Industry Association of Canada (TIAC) and our members from coast to coast to coast, we are writing to you concerning the Budget 2017 proposal to change the foreign visitor tax rebate program. While TIAC and the industry were very pleased with news that Destination Canada, Statistics Canada and Indigenous tourism will receive much needed funding to support tourism marketing, data and Indigenous tourism development, changes to the foreign visitor tax rebate program (FCTIP) and proposed implementation has a significant portion of tourism businesses extremely concerned. While the stated goal of this exercise seeks to repeal inefficient tax measures, we submit that creating financial hardship on SMEs and making Canada less cost competitive were not the government’s intended outcomes – in fact, they will become unintended consequences of this proposal. We hope that this proposed repeal will be reconsidered and the tax rebate will remain intact until all parties can consult and find ways of making it more efficient.
Indeed, we are concerned by the lack of consultation prior to this budget recommendation, especially given its financial ramifications on many tourism businesses across the country, including a very large number of small and medium size businesses. The current Federal Tourism Strategy states that: formalized engagement from industry stakeholders to “foster more cohesive industry input to public policy consultations” (42) is a promise by the government. Further, the Department of Finance Canada and Canada Revenue Agency are instructed to consult with representatives of the tourism industry to “examine the operational design and administration of the Foreign Convention and Tour Incentive Program and to explore the feasibility of changes that would improve the program’s effectiveness” (48).[1] Despite this, no consultation occurred prior to the announcement to repeal portions of the FCTIP program in Budget 2017. TIAC andour members were caught off guard by these proposed changes.
While the $15 million per year savings outlined in the supplementary budget documents may seem small and inconsequential, in reality this change has caused major concern in the tour operator industry.
While the GST/HST rebate may have appeared to be under-utilized, it was widely used as a competitive tool to attract international travelers to Canada by lowering the cost of tour packages to make them more affordable. In the absence of this rebate, many businesses - including significant numbers of small and medium sized tourism businesses – will be left absorbing significant additional costs and in some cases, eliminating profits. Tour operators are significantly impacted as travel packages can be pre-sold up to two years in advance – sometimes even longer. The rebate is usually builtin to the price of packages offered internationally but actual payment does not occur until well after the travel has occurred – in fact, sometimes as late as three months after the fact.
The Supplementary Information booklet describing implementation of this measure states that: the rebate will continue to be available in respect of a supply of a tour package or accommodations made after Budget Day but before January 1, 2018 if all of the consideration for the supply is paid before January 1, 2018. Many operators have already entered into agreements at set prices through to the end of 2018 and well into 2019 on the assumption that the rebate will be in place. Collectively, the impact will represent significant financial losses for many small and medium size businesses. Further, the Federation of Canadian Outfitters has a very similar problem in that a majority of these businesses are very small and offer packages often exceeding $5000 or more. The rebate is also incorporated into those packages and will come at a direct cost to them, in some cases virtually wiping out their profits.
Of equal concern to us is that these changes may have even greater economic consequences because of the added costs to international travellers. We have heard from Canada’s largest inbound operator in the U.K (our second largest inbound market, and biggest overseas market), that this announcement is “disastrous”, that it is a “negative sign from Canadian tourism” and will force them to increase package prices by up to 15%. From a cost competitiveness perspective, Canada already ranks among the least competitive countries in the world. An increased sticker price on travel packages may well have many looking for other travel options.
Canada competes with the world when it comes to attracting foreign visitors. While Canada’s arrival numbers increased significantly this past year, so has the number of international arrivals globally. In fact, internationally, 2016 saw more than 1.3 billion visitors travel the world compared to 1.18 billion the previous year. Tourism is one of the fastest growing industries worldwide but it is also extremely competitive. According to the World Economic Forum Travel and Tourism Competitiveness Report 2015, Canada ranks 130 out of 141 countries in terms of cost competitiveness, and this very low rating takes into consideration the foreign visitor tax rebate that is in question here.
Any move to further increase costs or repeal tax rebates that provide some cost relief will have a negative impact on Canada’s already compromised cost competitiveness.
Given these circumstances, we respectfully ask the Standing Committee on Finance to urgently consider and review the significant impact of this proposed budget change on the tourism industry. Should the government choose to move forward with this change, we urge you to reconsider the implementation schedule in light of the travel tour industry purchase cycle which extends up to two years in advance. For clarity, we would respectfully ask that the transitional measure be amended to read: “as a transitional measure, the rebate will continue to be available in respect of a supply of a tour package or accommodations made after Budget Day but before December 31, 2018 if all of the consideration for the supply is paid before March 31, 2019.
While this proposed transitional measure will not address Canada’s cost competitiveness in the long term – costs will increase as a result - it will, at the very least, help alleviate the significant financial hardship caused by the proposed amendments to GST/HST rebate for foreign travelers and tour operators for the current buying season.
We thank you for taking the time to consider our letter regarding recent budget measures and their impact on our industry. We have had discussions with a number of officials in the Finance Department, the Finance Minister’s office as well as the Minister of Small Business and Tourism. We appreciate the support we have received from the Minister of Small Business and Tourism as well as the Minister of Finance in supporting Canada’s $91.6 Billion tourism industry. It is our sincere hope that we can resolve this matter for the benefit of the industry as a whole, the economic contribution it makes to Canada and the 1.7 million Canadian jobs it supports. We would be pleased to discuss this matter with you at your convenience.
Sincerely,
Charlotte Bell
President and CEO
cc:
Ron Liepert, Member of Parliament & FINA Vice-Chair
Pierre-Luc Dusseault, Member of Parliament & FINA Vice-Chair
The Honourable BardishChagger, Minister of Small Business & Tourism
The Honourable Bill Morneau, Minister of Finance
The Honourable MarcGarneau,Minister of Transport
The HonourableRalph Goodale, Minister of Public Safety & Emergency Preparedness
The Honourable Ahmed Hussen, Minister of Immigration, Refugees & Citizenship
The Honourable Patricia Hajdu, Minister of Employment, Workforce Development and Labour
John Matheson, Director of Policy to the Minister of Small Business & Tourism
Andrew Otto, Finance Canada
Maximillian Roy, Finance Canada
Gudie Hutchings, Parliamentary Secretary Small Business & Tourism
Shereen Benzvy-Miller, Assistant Deputy Minister of Small Business, Tourism and Marketplace Services
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