The Great Tampon Tax Debate

You might have heard that there is a petition being circulated calling on the federal government to end the GST on tampons, sanitary pads, and other menstrual products.

This is nothing new. There have been similar campaigns in all countries that have value added taxes. The most successful one that I know of was on the one in the UK. The UK originally these products were taxed at a rate of 17.5% (now 20%) which is the standard rate. The campaign successfully saw this rate reduced to 5%, which is the reduced rate. I also know that in the provinces in Nova Scotia and Ontario, these goods are not subject to the provincial portion of the HST.

Those involved in the Canadian campaign do not seem to have much knowledge of the GST system, so I want to wade in with some information here.

As I hope most understand, the GST/HST is a value added tax (VAT). A value added tax avoids the cascade effect of sales tax by taxing only the value added at each stage of production. Through the use of input tax credits, if the purchaser is not an end user the goods or services purchased are instead a costs to its business then the tax it has paid for such purchases can be deducted from the tax it charges to its customers. This ensures that the tax is only paid once.

All goods and services in Canada are subject to the GST/HST unless they are either zero-rate or exempt (most goods and services are taxable). This anti tampon tax campaign does not seem to make it clear if it wants these goods exempt or zero rated, and I expect those involved don’t know the difference. Zero rated means that the GST/HST is not charged on the final sale of these goods, but the GST/HST can be recovered along the way via an input tax credit (ITC) on expenses incurred to make the zero-rated good. Exempt means no GST/HST applies to them. You do not charge the GST/HST on your goods/services and you cannot claim input tax credits (ITC). For example, in Canada groceries, medical devices, and road tolls are zero rated whereas legal aid service, child care services, educational services, bridge tolls and the like are exempt.

Why are some things zero rated or exempt? The short answer is politics. Economists designing tax system want broad base and low rates. Politicians want to win votes. The list of zero-rated goods was developed solely in response to public opinion and the agricultural sector lobby. Financial services were left out only due to administrative complexities. The exempt list was developed to ensure that these sectors would not pay more taxes under the GST than under the MST (the GST replaced the MST in 1991).

What is the problem with zero-rating goods and services? The exclusion benefits high income earners more than the lower income classes which these exemptions were design to protect. Instead of excluding goods and services, the better model is to target transfers to low- and middle-income households so that they are not worse off. And that is exactly what we do with the HST/GST tax credit. We compensate these households for the lost purchasing power. That tax credit would be bigger and better without the zero-rated goods.

What do we learn from the above? If we are going to exempt tampons, we won’t really be better off. If we are going to zero-rate them, then the GST/HST tax credit should be reduced accordingly, but I doubt that would go over well (damn logic).

It seems that the main argument about taxing these goods is that they are used predominantly by women and are a necessity good. There are lots goods and services that meet these criteria, but which I don’t hear calls for the same treatment. This includes treatment for yeast infections, nipple cream used when breast feeding, breast pads, bras. There are also lots of goods and services that are used predominantly by men and are necessity goods that are taxed. We even tax income and that too is a necessity goods.

I am a women with a regular menstrual cycle who is a high-income earner in a high-income household. I support the tax on the tampons, sanitary pads, and other menstrual products I buy and by doing so I am helping fund the GST/HST tax credit that helps low and middle income women buy theirs.


4 thoughts on “The Great Tampon Tax Debate

  1. I don’t follow your comment that zero-rating benefits high income consumers more than low income consumers. In general, the ad valorem tax borne will be proportional to consumption, and thus to income – but I doubt that consumption of necessities (especially in this instance) correlates to income. Could you expand on that aspect of your argument, please?

  2. 0 rated goods are mostly normal goods which are goods for which demand increases when income.

    • Well, that’s why I said “In general, ad valorem tax borne…” but I doubt that in *this instance* propensity to consume correlates with income. As a man, I speak from ignorance; perhaps poorer women buy (or use) fewer menstrual products than wealthier women due to cost, or there are instances of conspicuous consumption by well-to-do females, but I doubt it.
      By the way, I enjoy the blog – thanks for putting in the effort.

  3. Hi Dr. Tedds, thought you’d like to see Andre Picard’s argument for the tampon tax. I agree with your logic, but wonder how you would respond to his position that tampons are wrongfully taxed when items such as incontinence pads are not taxed.

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