British Columbians have voted to scrap the province’s controversial harmonized sales tax, according to the results of a binding, province-wide referendum.

Elections B.C. announced on Friday morning that 54.73 per cent of the 1.6 million British Columbians who cast a ballot in the mail-in referendum voted to get rid of the tax and 45.27 per cent voted to keep it.

B.C. Finance Minister Kevin Falcon said the government will now move to reinstate the PST with all of its previous exemptions. The transition is expected to take at least 18 months he said.

Falcon said eliminating the HST and reinstating the PST will cost the province more than $3 billion, but the province has a plan already in place to manage the change.

"This is step backwards, but it is a manageable step backwards," said Falcon after the results of the referendum were announced on Friday.

The province will enter into negotiations with the federal government on repaying the $1.6 billion it was given when the tax came into effect, he said.

There will be costs in setting up a provincial sales tax collection agency and businesses will need time to transition back to the PST, he said.

B.C. Finance Minster Kevin Falcon says it will take the province about 18 months to reinstate the seven per cent PST and five per cent GST. CBC

Falcon says spending increases will also be curtailed, but Health and Education will be protected. And, he is promising to begin consultations with the public on how to craft a new tax regime starting in September.

"This is a lesson in public policy change," said Falcon.

Falcon said he was disappointed with the result of the vote but not surprised.

"We recognized when we started from a place where 85 per cent of the public was opposed to the HST, in large measure due to our mishandling of the issue, that we had an uphill battle."

Tax's opponents react to vote

Former premier Bill Vander Zalm, who led the campaign to scrap the tax, said the vote was a win for the middle class in B.C.

"They were the ones paying the freight and it was a benefit to the big corporations in our province especially those that are exporting our resources. They should contribute as opposed to getting a refund at the expense of the consumer," said Vander Zalm.

"More importantly too, I think it sends a message to politicians throughout our country especially that they can't simply do things because it's the will of the premier or the party; that they have to in fact, on issues big as we see it here, consult the people," said Vander Zalm.

Former premier Bill Vander Zalm, who led the campaign to scrap the tax, said the vote was a win for the middle class in B.C. CBC

B.C. NDP opposition leader Adrian Dix welcomed the result.

"We have good news: the people won over the arrogance of the Liberal government and its powerful friends. It is a victory for fairness," said Dix.

"For a decade, the Liberal Party has shifted the tax burden onto B.C. families. A return to the PST will be good for communities, good for families and good for small business. It will make life a little bit more affordable for working families. It will also ensure that British Columbia has control over its sales tax policy, now and in the future," said Dix.

Jim Sinclair, the president of the B.C. Federation of Labour called the vote a victory for the people of B.C.

"My reaction is good news for British Columbia. People voted for tax fairness and against governments who lie to them, and going forward we can do the things we need in this province and corporations will continue to pay their share of the taxes in British Columbia. It's a victory for people and multi-million dollar advertising campaigns weren't enough to convince people to vote against their own best interests," said Sinclair.

B.C. expected to repay $1.6B

The office of Federal Finance Minister Jim Flaherty said the federal government will work with B.C. to roll back the tax, which has been administered by the officials in Ottawa.

"We respect the decision made by the people of British Columbia. We will work with the Government of B.C. on the transition. The provincial government has already repeatedly acknowledged that the $1.6 billion in transitional assistance will be recovered as per the agreement," said a statement issued by Flaherty's office.

But federal NDP MPs are already calling on Prime Minister Stephen Harper to forgive the debt.

“It would be both spiteful and damaging for Harper to now force B.C. to pay back $1.6 billion, after it was already invested in things like health care and education,” said NDP B.C. caucus chair Don Davies.

Helmut Pastrick, chief economist with Central One Credit Union and a member of the B.C. Economic Forecast Council said rolling back the HST will have a negative impact on the economy.

"I think overall it's somewhat negative for the B.C. economy longer term. Business investment will be somewhat more muted. Certainly in the short term, there'll be some mild benefit to consumers, more discretionary income.... But longer term this is a step backwards for B.C.'s competitiveness."

Adrienne Montani with the coalition for Poverty Reduction in B.C. said the vote would help lower income people.

"It means that in the short term anyway if we go back to the old regime, there are a number of things that are essential expenses that lower income people must spend on that will no longer be subject to an extra tax. So it's probably a good news story for their pocket-books at the moment," said Montani.

John Winter, the president and CEO of the B.C. Chamber of Commerce was concerned by the result.

"Significant disappointment, a long hard battle that was unsuccessful and certainly it's going to have a profound impact on the economy of this province and the time it's going to take over the next 18 months to revert back to the situation with the PST and GST combination and items that were subject to taxation under the provincial scheme, it's going to be a very long period of uncertainty," said Winter.

Petition led to referendum

Former premier Gordon Campbell announced the surprise move to a harmonized sales tax in 2009, following his victory in the May provincial election.

The surprise announcement sparked widespread outrage and a campaign to repeal the HST spearheaded by former B.C. premier Bill Vander Zalm, who argued B.C. consumers would ultimately pay more under the tax.

Vander Zalm's popular campaign to repeal that tax ended up collecting more than 700,000 signatures on a petition to trigger a referendum.

The public backlash over the tax is also believed to be responsible for Campbell’s early retirement as premier. But before his resignation last fall Campbell said the results of the referendum would be binding.

Since July 2010 the HST has combined the five per cent federal GST with the seven per cent provincial sales tax for a harmonized 12 per cent tax.

Consumers pay an extra seven per cent tax on restaurant meals, airline tickets, funerals and haircuts — all items that were previously exempt from the PST.

As part of a campaign to keep the tax, Premier Christy Clark promised to cut the HST to 10 per cent if British Columbians voted to keep it.