Wheat from the Chaff

Sorry... we aren't drowning in taxes

Here's a story that I have yet to find in the Vancouver Sun or the G and M. [Update: I did find this story in the National Post, but it was half the length of the Toronto Star article.] This is not the sort of thing that low-tax corporate media outlets want you to know; the gist of the story is that federal and provincial business taxes are actually quite low, even in comparison to the United States. Of course, racing to the bottom with Mexico may not be the greatest idea, either.

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Canada scores well in tax report: Canada ranks behind Mexico, and far ahead of the U.S. in KPMG report

thestar.com (Toronto Star Online, May 13, 2010)

Canada ranks second to Mexico and far ahead of the U.S. on a list of tax-friendly countries for business, according to a new report.

In general, businesses in Mexico pay 40.1 per cent less tax than those in the U.S. Taxes in Canada are just over one-third, or 36.1 per cent, lower.

At the other end of the spectrum, corporate taxes are 81.4 per cent higher in France than the U.S., according to the report released Wednesday by accounting firm KPMG.

Lower corporate tax rates can be a huge competitive advantage when companies decide where to set up shop, said Greg Wiebe, managing partner in KPMG tax practice in Toronto.

“Business has the ability to set up manufacturing, distribution plants, and offices anywhere in the world depending on where it makes sense. Having a competitive corporate tax rate hopefully allows you to attract more business and investment into the country which creates jobs,” Wiebe said.

“We’re a small country and have a relatively small economy. We need to take advantage of anything we can to attract business into this country.”

While Mexico remains in the number one spot with the lowest total taxes, changes to the tax systems in Australia, Canada, and the Netherlands moved them higher in the ranking, conducted every two years.

The report tallies up the cost of income tax, capital, sales, and property taxes, as well as miscellaneous local taxes and statutory labour costs, in 95 cities across 10 countries. The U.S., the largest economy in the world, is used as a baseline.

While personal income taxes and sales taxes are still higher in Canada, payroll taxes have been reduced, capital taxes have been phased out, and corporate tax rates have been falling in recent years. Canada’s federal and provincial corporate tax rates are approaching 25 per cent. The U.S. federal tax rate for business starts at 35 per cent, and state tax rates vary.

Canada ranked third in the 2008 survey.

The introduction of the HST in Ontario and British Columbia is likely to enhance Canada’s standing in the coming years, Wiebe said. “The HST is quite a business friendly way of applying a sales tax.”

Among the ranking of cities, Vancouver comes out on top, and ahead of Monterrey and Mexico City. Seattle, its natural U.S. counterpart, ranked at 18.

Montreal and Toronto rounded out the top five, again showing a big tax advantage over U.S. cities in the eastern corridor, such as New York City, which came in at 27, Philadelphia at 14, and Boston, which captured the 13th spot.

Lower health care costs and provincial taxes in British Columbia helped boost Vancouver to the top of the list, Wiebe said.

Vancouver was also deemed the most attractive city, tax-wise, for manufacturing and corporate and information technology companies.

For research and development, Montreal ranked as the top Canadian city, taking the No. 2 spot behind Melbourne, Australia. Sydney, Australia; Vancouver; and Manchester, U.K. filled out the top five.

Australia moved up to the top spot from fifth place in the 2008 survey, as a result of a new refundable tax credit for research and development.

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Almost as fascinating as the article were some of the letters posted by the Toronto Star readers. Here's one:

Strange Report
I was always under the impression that taxes are lower for businesses in the US than in Canada. I would be interested in knowing exactly how these findings were put together as it is probably laden with bias.

In other words, all the reader has ever heard from the media is that businesses are over-taxed. So, any contrary point of view, even from a respected international accounting firm like KPMG, must be immediately suspicious. I suspect such skepticism would rarely follow a more traditional "taxes are too high" story, no matter how self-serving it might be.