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ONTARIO RETAILERS FEAR EFFECT OF NEW TAX THEY WORRY NEW 7% NATIONAL SALES TAX WILL DRIVE MORE CUSTOMERS TO BUFFALO

Whether Canada's controversial new goods and services tax is seen as a stinging blow to business or a new opportunity mostly depends on which side of the border you're on.

For Canadian retailers, the new 7 percent sales tax on most goods and services is about as welcome as a lump of coal in a Christmas stocking.

At the same time, though, the new goods and services tax will give Canadians another incentive to cross the border to shop in the United States, business development officials in the Buffalo area say.

"It's certainly not a detriment and it could be a positive" for Western New York, said Fred Caso, vice president of the Niagara Falls Chamber of Commerce. "It's difficult to say it's going to have a significant impact because of the number of Canadian shoppers who already come over."

And that's what worries Canadian retailers, who already are struggling to slow the steady tide of their countrymen who head for the United States each week in search of lower prices.

"Being in a border town is difficult enough as it is," said Laneta Goddard, manager of the Brass 'N Lite store in Fort Erie. "What I fear is that they will keep going to the United States to shop."

The new tax, which was approved by the Canadian Senate on Thursday and takes effect on Jan. 1, will make fundamental changes in the country's tax system.

The tax, known as the GST, will add 7 percent to the cost of just about all goods except food. It also covers most services, such as haircuts, attorney fees and even piano lessons.

The GST replaces Canada's 73-year-old manufacturing sales tax, which applied to only about one-third of all of the country's consumable goods.

Government officials and business leaders argued that the new tax ultimately will bolster the economy because the manufacturing sales tax made it difficult for Canadian products to compete with imports.

Although the GST is a more progressive tax because it will be applied to about 95 percent of all consumable goods in Canada, the tax was highly unpopular among citizens. Some polls found that as many as 80 percent of Canadians opposed it.

"I don't like it," said Josie Sicurella, a Fort Erie resident who was shopping at a local plaza Friday. "Everybody says they're going to buy less."

Jerry Salvapi, another Fort Erie resident, agreed. "Most people don't want it. We're already overtaxed," he said.

And Salvapi said the new tax may force more Canadians to look toward the United States for their shopping needs. "I don't go now, but I plan to go," he said.

As a result, the new tax is particularly unpopular with Canadian retailers. Most of their goods were not subject to the manufacturers tax, which means that they will have to add 7 percent to their prices. The new tax also will be added on top of provincial sales taxes, which range from 8 to 10 percent.

"I think it's going to hurt a lot of businesses," said Linda McGrath, assistant manager of the Agnew & Surpass shoe store in Fort Erie. "People are going to be more cautious" with their spending, especially now that the Canadian economy officially is in a recession.

Still, the new tax actually will reduce the prices of some items -- such as cars -- that were subject to the manufacturers sales tax. A Canadian government study estimated that the price of an $8,400 subcompact car would fall by $374.

The new tax also is forcing many retailers to spend hundreds of dollars apiece on new cash registers that will be able to calculate the additional tax properly.

Yet the impact of the GST probably will not be as dramatic on manufacturing companies, says Dora Kukuliatas, manager of Canadian business development for the Greater Buffalo Chamber of Commerce.

"We don't hear the manufacturers specifically focusing on the GST as much as the retailers or the service providers," Miss Kukuliatas said.

Even so, she said the new tax could have a psychological effect that encourages manufacturers to consider moving to the United States. "This tax hits home to the Canadian business person that they have another tax to deal with," she said.

The GST also could lead to lower prices for some imported American products that were subject to the higher manufacturer's sales tax, said John L. Manzella, owner of Free Trade Consultants of Williamsville.

"The big question is whether the importers will reduce the price or just pocket it," Manzella said.

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