Canada’s corporate tax rate dropped in 2012 as the last phase of federal cuts took effect. This tax cut is consistent with the global trend in the reduction of corporate tax rates, but Canada’s rate fell faster than other countries’ rates during the year, according to KPMG’s Global Corporate and Indirect Tax survey of tax rates affecting business.
“General corporate income tax rates are important but they are only one factor in comparing country-to-country tax burdens,” said Elio Luongo, Canadian managing partner, Tax, KPMG in Canada. “Sales tax, property tax, capital tax and other local business taxes are all considerations. International companies should analyze all of these costs carefully and how they interact.”
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Canada’s corporate tax rate has dropped by 2% to 26% in 2012 (from 28% in 2011) but the decline in most regions of the world in 2012 was much smaller at less than 1%. Based on these results, the survey says the global trend towards falling rates will continue in 2013, albeit at a slower pace than in the past. No further cuts are scheduled for Canada after 2012.
The survey compares corporate and indirect tax rates from more than 125 countries. Canada’s general corporate tax rate of 26% for 2012, which includes federal and provincial tax, compares favourably with the U.S. corporate rate of 40% but is still higher than the U.K. rate of 24% and the European Region average of 20.5%.
The survey also compares value-added type indirect taxes (Goods and Services Tax (GST) or Value-Added Tax (VAT)) in 111 jurisdictions around the world that have such indirect taxes. While corporate tax rates have been declining around the world, GST and VAT regimes have proliferated, with rates rising to an average of 15.5% in 2012. These increases are expected to continue in 2013.
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Canada has bucked this trend by not raising its federal GST rate. Also, in the provincial context, British Columbia is moving from a harmonized sales tax back to its former provincial sales tax regime.
While it is possible to compare Canada’s corporate income tax rate with the U.S., it’s not easy to compare indirect tax rates because the U.S. does not impose a national value-added tax. Instead, businesses have a complex system of “sales and use” taxes imposed by most states and many local governments at various rates.