<P> The goods and services tax (GST) (French: taxe sur les produits et services, TPS) is a multi-level value added tax introduced in Canada on January 1, 1991, by then - Prime Minister Brian Mulroney and his finance minister Michael Wilson . The GST replaced a hidden 13.5% manufacturers' sales tax (MST); Mulroney claimed the GST was implemented because the MST was hindering the manufacturing sector's ability to export competitively . The introduction of the GST was very controversial . The GST rate is 5%, effective January 1, 2008 . </P> <P> The goods and services tax is defined in law at Part IX of the Excise Tax Act . GST is levied on supplies of goods or services purchased in Canada and includes most products, except certain politically sensitive essentials such as groceries, residential rent, and medical services, and services such as financial services . Businesses that purchase goods and services that are consumed, used or supplied in the course of their "commercial activities" can claim "input tax credits" subject to prescribed documentation requirements (i.e., when they remit to the Canada Revenue Agency the GST they have collected in any given period of time, they are allowed to deduct the amount of GST they paid during that period). This avoids "cascading" (i.e., the application of the GST on the same good or service several times as it passes from business to business on its way to the final consumer). In this way, the tax is essentially borne by the final consumer . This system is not completely effective, as shown by criminals who defrauded the system by claiming GST input credits for non-existent sales by a fictional company . Exported goods are "zero - rated", while individuals with low incomes can receive a GST rebate calculated in conjunction with their income tax . </P>

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