Tax-Included Pricing: A Surprisingly Convoluted Constitutional Conundrum

K-Citymarket Cashiers by Arkke is licensed under CC BY-SA 4.0.

For us Canadians, it is standard practice to enter a store, select items listed at certain prices, only to be presented at the cash with a different, higher final price than the sum of the prices listed on the goods we wish to purchase. Well, of course, you may say to yourself, that is how sales taxes work. However, this is quite unusual within industrialized western nations. In the European Union, sales taxes, the value-added tax (VAT), must be included in all prices presented to the public. This means that you pay what you see listed in nearly all European retailers, with the only exception being businesses selling goods to other businesses. To many, the idea that you would not be sure of what amount you are paying before you pay is wildly anti-consumer, and it is not difficult to see why.

Mandatory tax-included pricing is much more convenient to consumers, who are not required to calculate and add percentages to each item they desire to purchase, which may or may not even be the same amount. This can be more difficult than one would think, as what is and what is not eligible for sales taxes is often not intuitive to the average consumer.  For example, the tax code in Canada states that items that qualify as basic groceries are exempt from Government Sales Tax, but items considered to be snack products or confectionaries are not. The tax code is full of such exceptions and exemptions, making it completely unrealistic for any individual to be able to easily calculate the precise final sales price of the contents of their grocery cart. This is especially true for those who may be shopping in separate tax jurisdictions, such as Canadians living near provincial borders. It cannot reasonably be expected that Canadians be intimately familiar with the tax code and be ready to make all these calculations themselves on the fly. As a result, it is standard in Canada to only have an estimate, whose accuracy depends on your skill in mathematics and knowledge of the tax code, of what you will be paying for your goods. Countries that have enacted a mandatory tax-included pricing policy have done so in the belief that it should be as easy as possible for consumers to calculate how much they will need to spend on their purchases. This makes shopping on a budget easier and enables price comparisons between goods. 

So why has this policy not been adopted in Canada yet? The biggest reason might have nothing to do with the merits of the policy at all, but instead the convoluted nightmare that is constitutional law on the matter. In the Canadian Constitution, certain legislative duties are considered to be the exclusive purview of the federal government, and others of the provincial governments. Provincial governments under this arrangement have jurisdiction over “Property and Civil Rights in the Province”, which includes legislative domains such as pricing and advertising, meaning that the federal government cannot enact legislation forcing provincial taxes to be included within the price without it being considered unconstitutional. 

However, this does not mean that implementing tax-included pricing is simply up to provincial governments. While provinces do technically have jurisdiction over this matter, enacting tax-included pricing legislation conflicts with an arcane constitutional precedent regarding provincial taxing privileges. Under section 92(2) of the Constitution, provinces are granted the ability to levy taxes, but only direct taxes. The problem is that it is typically understood that a direct tax, even in the form of a sales or value-added tax, is something that is explicitly imposed on the purchaser. This has traditionally been accomplished by provincial governments by imposing their sales tax only at checkout. Does this mean the policy is dead in the water? In the clearest possible terms: maybe. There is nothing that constitutionally requires sales tax to be applied to goods only at checkout. It is arguably possible to allow tax-included prices to be displayed on goods, as long as it is ensured somehow that the amount of tax added onto the goods being purchased is made explicit somehow, thus keeping it as a direct tax. For example, legislation as simple as making before and after-tax prices mandatory to display on receipts could make tax-included pricing constitutionally kosher. If this would be constitutionally insufficient, another possible workaround would be to allow a pricing display policy similar to some stores in Japan, where some prices on goods are displayed at both their before-tax and after-tax values. So, provinces just need to enact legislation with these or other provisos, and then we can enjoy the same freedom from calculating insufferably complex percentages to our goods that most of the world enjoys, right? Not exactly.

While it is true that the federal government does not have the jurisdiction to broadly enact tax-included pricing within the provinces, they still do retain exclusive jurisdiction over GST. So even if provinces enact tax-included legislation, which it is constitutionally unclear if they even can, this legislation could not apply to GST. This means that both the federal government and the provincial government would have to pass legislation mandating their respective taxes be included in the price, the provincial tax would have to be visible to the consumer in some way, and the provincial legislation would be wide-open to be taken to court for being unconstitutional. While it stands a fair chance at winning its case, it is easy to see why without broad public support neither provincial governments nor the federal government has made serious moves trying to start what would undoubtedly be a herculean legislative process over what is admittedly a rather trivial policy.

In conclusion, while most of the western world has reached a consensus regarding mandatory tax-included pricing as being superior to tax-exclusive pricing in nearly every way imaginable, the esoteric nuances of the Canadian Constitution have made adoption of the policy bizarrely difficult. Adoption of the policy country-wide would require legislative coordination between the provincial and federal governments, who undoubtedly would see some opposition from those business owners who would rather keep their display prices lower than their final sale value, and more than likely a supreme court challenge to decide constitutionality. The road to mandatory tax-included pricing is indeed a long one, but no worthy conquest is an easy one. Canadians may yet live the impossible dream that is seeing a price for a good or a service and then paying that price for the good or service.