Canada is losing its edge in the competition for global capital, according to the Annual Global Tax Competitiveness Survey by Prof. Jack Mintz and Dr. Duanjie Chen.
After a decade of remarkable progress in reducing the tax burden on business investment — moving from one of the least tax-competitive jurisdictions among its industrialized peers in 2000, to ranking in the middle of the pack by 2011 —Canada has slipped by largely standing still.
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“While other countries in our peer group have continued to reform their business-tax regimes, they have surpassed Canada, which has slid from having the 19th-highest tax burden on investments by medium-sized and large corporations in 2012, to the 14th-highest among 34 OECD countries in 2014.
“Even more worrying is that Canada’s political currents are running the wrong way, with a few provinces having increased taxes on capital in recent years and a number of politicians today floating the possibility of even higher business taxes to help address budgetary strains,” says Mintz.
He and Chen argue the right approach to raising tax revenue and improving the economy is the opposite: lowering rates and broadening the tax base by making Canadian jurisdictions even more attractive to corporate investment.
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An important step towards this would be for federal and provincial governments to reduce targeted tax assistance and to level the tax field for all industries and sizes of businesses, ending the preferential treatment of favoured industries and small enterprises. In addition, those provinces that have yet to harmonize their sales tax with the federal GST should do so, or at least consider adopting a quasi-refund system that would relieve the provincial sales tax on capital inputs.
Still, Canada remains much more competitive than its neighbour to the south. “My message to our most important trading partner is tax reform is urgent. The U.S. is no longer globally competitive. Further, proposals being floated by President Obama to further tax U.S. offshore income would worsen the situation,” concludes Mintz.