A national report card shows tax competitiveness has improved across Canada at the federal and provincial levels, but Ontario remains at the back of the class with the highest effective corporate tax rates in the land.
A new study published today by the C.D. Howe Institute, Business Tax Reform: More Progress Needed, reveals the results of a Canada-wide survey of business tax reforms since 1997.
They note progress at the federal level and in some provinces, notably Saskatchewan and New Brunswick.
However, at 42.2%, Ontario has the highest effective federal-provincial corporate tax rate on capital for non-resource industries as of 2006. Ontario’s rate is also the highest among 36 industrialized economies excluding China.
“The uncompetitive tax regime for businesses in Ontario must be a serious concern,” say authors Duanjie Chen and Jack Mintz. “It impacts not only Ontario’s residents but the rest of Canada, given the province’s size and importance.”
Ontario also has the highest effective tax rate among Canada’s provinces, even though the province is gradually cutting its capital tax, and will eventually see its effective tax rate drop to 38.6% in 2010.
If the province wants to be more competitive and attract more investment all it has to do, the authors say, is:
- phase out its capital tax more quickly. (It is currently scheduled to be phased out by 2012);
- Scrap the provincial sales tax and adopt a value-added tax instead; and
- Reduce its corporate income tax rate.
The study is available at www.cdhowe.org/pdf/ebrief_31.pdf.