Canada Performs Badly On Business Taxes

by Mike Godfrey, Tax-News.com, Washington

24 September 2008

Canada has fared badly in a recent comparison of tax burdens on capital in 80 countries, highlighting the need for the main political parties contesting the upcoming federal election to place more emphasis on business tax reforms, according to one think tank.

Duanjie Chen and Jack Mintz, authors of the C.D. Howe Institute e-brief 'Still a Wallflower: The 2008 Report on Canada's International Tax Competitiveness,' said that Canada's tax burden on business investment ranks 11th highest among the 80 countries studied, as measured by the effective tax rate on capital.

The authors have concluded that this stiff burden on business growth indicates the need for a new approach to industrial policy and tax reform, which ought to be an important topic in the current federal election.

In comparison to the 80 countries surveyed, Canada's effective tax rates on capital, at 29.1% in 2008, are lower than China's (45.3%) and India's (37.6%) but higher than those in the US (26.5%), the UK (28.7%), Italy (28.1%) and Germany (27.3%).

Moreover, Canada's rates are far higher than those in a host of countries, the study points out, citing as an example Canada's NAFTA partner Mexico (15.4%).

Chen and Mintz stressed that Canada's ranking continues to reflect high effective tax rates on capital for the services sector.

The authors conclude that Canadian governments should concentrate on reforms that not only lower tax rates but reduce differences among effective tax rates across industries.

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