A report from the association representing Canada’s certified general accountants says the increasing complexity of this country’s tax system is serving as a drag on the economy. The result is some $35 billion in annual compliance costs, at a time when Canada’s economic situation can ill afford it. A drive toward tax simplification, the report contends, would result in cost reductions and increased efficiency. That, it adds, should be the federal government’s top policy priority.
“Tax complexity has gotten worse,” says Carole Presseault, vice president of government and regulatory affairs with Vancouver-based Certified General Accountants Association of Canada (CGA). “That’s why we’ve gotten so much traction on the issue.”
In February, the CGA released a report that suggests the need for simplifying the tax system has become urgent. The report was the result of a CGA-led summit on tax simplification held in December in Ottawa, which brought together experts from the business sector, the financial services industry, academia and the government.
“The potential savings that could accrue from a simpler and more efficient tax system could serve as an important source of revenue to help deal with the costs of an aging society,” says the CGA report, entitled Tax Simplification: Benefits and Political Challenges in a Canadian Context.
The CGA report says tax complexity comes in many forms, including duplication in the tax code, difficult-to-comprehend language and uncertainty caused when draft tax proposals are not enacted into law but remain in legislative limbo for years.
The addition of a variety of new tax credits in recent years – such as the children’s fitness tax credit, the transit tax credit and the temporary home-renovation tax credit – have further contributed to the complexity of the tax code, says the CGA report.
Most tax experts agree.
“The costs of administering those credits are pretty high relative to the limited benefit of the programs,” says Rick Robertson, associate professor with the Richard Ivey School of Business at the University of Western Ontario in London, Ont. While encouraging Canadians to take transit or helping parents pay for children’s fitness activities may be laudable goals, Robertson says, targeted credits such as these may not be the most efficient way to achieve public-policy goals.
@page_break@An overly complicated tax system leads to confusion for individual taxpayers and represents a compliance burden for corporations, especially small businesses that find compliance costs a barrier to innovation and growth.
The CGA report admits that the government has taken some steps in the right direction regarding tax simplification, such as its Red Tape Reduction Action Plan, released in October and meant to remove unnecessary burdens to Canadian businesses. In addition, the government introduced its Technical Tax Amendments Act in November, which is still winding its way through Parliament. That act is meant to address long-standing tax issues that have led to uncertainty in the code.
The CGA report urges the government to establish a “non-partisan, independent commission” to examine the issue of tax complexity and provide options for simplification. The report also suggests that the parliamentary budget officer be given the power to examine tax expenditures, and that parliamentary committees examining tax issues be given a stronger role and more resources toward that end.
The CGA report argues that other countries – notably, Britain and Australia – have had success in moving toward tax simplification by making a long-term commitment to address this issue, and by making incremental changes.
“These problems weren’t created overnight,” Presseault says. “And, frankly, they won’t be resolved overnight. Good public policy takes time. The important thing is to keep moving forward.”
In general, tax experts agree that the Canadian tax system is well overdue for simplification. But there is skepticism regarding the suggestion that any real progress on this issue will be made.
“Tax simplification is fraught with political issues,” Robertson says. “Any way you look at it, somebody is going to be made worse off [if you remove a tax credit].”
Says Kin Lo, associate professor with the Sauder School of Business at the University of British Columbia in Vancouver: “Since Day 1, the current government has tried to limit the power of the parliamentary budget office and has flatly rejected most conclusions and recommendations coming out of that office.”
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