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Simpler, Lower Tax Rates Would Boost Canada

A uniform Canadian corporate tax rate would encourage capital investment and attract profitable corporations to the country, while not imposing a significant revenue cost on the federal or provincial governments, a new report from the University of Calgary says.

The report, which was written by Duanjie Chen and Jack M. Mintz for the University’s School of Public Policy, considers how Canada might become more globally competitive. It points out that Canada has slipped down international competitiveness rankings and now has the 14th-highest tax burden on investments by medium-size and large corporations among Organisation for Economic Co-operation and Development (OECD) countries.

Since 2000, corporate tax reforms have led to a reduction in general corporate income tax rates from a federal–provincial average of 43 percent to 26.5 percent. However, the report says that “strong economic arguments can be made in favor of further corporate tax reform in Canada with reductions in corporate tax rates offset by broadening tax bases.” It suggests that such reforms would improve prospects for investment, boost government revenues, and improve tax equity.

The report recommends that Canada should move towards a uniform income tax rate of 20 percent, composed of an 11 percent federal tax rate and a nine percent provincial rate. This could be achieved by removing tax preferences for resource and manufacturing companies and small businesses. The federal headline corporate tax rate is 15 percent, while the small business rate is 11 percent. A uniform rate would put Canada in a similar league to the UK, which will have a corporate tax rate of 20 percent from April, the report says.

The report also urges those provinces that have yet to harmonize their sales tax with the federal goods and services tax (GST) to do so. For example, Alberta, which has no sales tax, could become more competitive by adopting a harmonized sales tax (HST) and using the revenue generated to reduce personal and corporate tax rates.

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