A key difference between the old PST and GST system and the HST is that the HST -- like the GST -- is a Value-Added Tax (VAT), while the PST is a cascading tax.
As a "cascading" tax, PST was applied to every stage of the supply chain, essentially adding tax on tax. For example, under the GST+PST, every construction company and manufacturer in B.C. paid tax on raw materials, then charged the tax at every step along the way until the product was paid for by the purchaser, where it was charged again.
Here's a screenshot from a viral video on HST explained by UBC law student Chris Thompson explaining roughly how this works:
Meanwhile, a value-added tax, or consumption tax, passes that burden on to the end user of product, allowing the business to recover taxes paid on goods and services required to make that product.
Here's an example of how a product would be sold under HST:
The above graphic is slightly misleading because, as we know, most items sold in stores aren't any cheaper as a result of HST. At least not yet.
Is the HST a business-friendly tax?
Businesses do save more money under the HST than under the GST and PST system.
You may have wondered why people keep talking about how the HST is a business-friendly tax. It's because most businesses can recover the cost of HST paid on inputs through a government rebate.
The additional revenue accrued in a system that does not tax businesses inputs means more room to grow, which includes potentially hiring more employees and also theoretically driving down prices of goods and services.
Additionally, because the HST is one tax rather than two, businesses can save money previously spent on administration fees.
Doesn't the HST hurt seniors and low-income residents?
If they apply for HST credit (and rarely make purchases outside the HST-exempt bracket), no.
Economists say that the HST doesn't hurt low-income residents because it provides more money to financially stricken people via tax credits.
(There's a handy tax credit calculator on the Revenue Canada website to help you sort it all out.)
The application is similar to applying for the old GST credit. By ticking a box on your income tax form, B.C. residents making under $20,000 a year are eligible for the full credit of $230 per person. This is a lot more than under the previous PST credit, where a family would have maxed out at $150. Families with incomes of $25,000 and below will receive an annual B.C. HST credit up to $230 per family member. Lower-income seniors will also receive one-time transitional cheques of $175 to ease the increased tax burden until the lower rates take effect next year.
So as long as low-income residents and seniors properly apply for HST credit and avoid purchases outside of the HST-exempt bracket (rent, basic groceries, etc.), they are actually receiving more money than they would under the old GST and PST system.
However, just because someone makes under $20,000 annually doesn't mean they are sitting in their apartments, never buying clothes or eating out. Young people tend to make large purchases such as computers and spend on travel, which may cancel out whatever funds they receive via tax credits. Also, people who are not proficient in English (or just financially less literate) may lose out by not applying for tax credits when filling out their income tax form.
So that's my attempt at explaining the HST. If you can give a better overview, I'd greatly appreciate hearing from you in the comments section below.