Yahoo Finance Canadian tax system leads G8 nations
Good news Canada: Out of 183 economies our nation ranks 11th overall with respect to private, midsized businesses ease of paying taxes.
Canada's tax system is reportedly well ahead of G8 and BRIC (Brazil, Russia, India, China) economies, suggests annual joint-research from PricewaterhouseCoopers LLP (PwC), the World Bank and the International Finance Corporation, which provides a comparison of the ease of paying taxes by tax regimes globally.
The study measures the overall ease of paying taxes for a hypothetical small to midsized domestic business by assessing three indicators: The number of tax payments per year; the time taken to compile returns and submit tax payments; and by calculating companies' total tax liability as a percentage of pre-tax profits.
Our 11th place ranking makes Canada the easiest country to pay taxes in the G8 based on the number of tax payments, the time it takes to comply and its total tax rate (TTR).
"Canada must compete with other nations for global business investment," says Lincoln Schreiner, tax services partner with PwC in Vancouver. "A competitive business environment needs an aggressive and efficient tax system which includes competitive tax rates, tax rules that recognize modern business structures and practices, and reduced compliance burdens."
Tax system provides entrepreneur ease
That, in-turn, can be seen as a signal to Canadians to be entrepreneurial and to start a business.
"Canada is very supportive by having a good tax system and alternatively although it isn't for international business, it might be used as a compass for international business to say 'Canada is progressive'," he says. "So businesses that are looking for a home, they might come to Canada versus the United States next door."
That's not to suggest there isn't room for improvement. Schreiner says in order to move up on this list, more red tape needs to be cut.
"For example, there are some countries that ask for tax payments less frequently. I was told that Switzerland only asks for tax payments once a year whereas in Canada we have a tendency to ask for frequent tax payments and lots of paperwork," he says. "So we could cut back on the paperwork."
Business tax rate lower in Canada
The Canadian business tax rate has been reduced to a low of 28.8 per cent resulting in a TTR ranking of 39 for Canada out of the 183 economies included in the "Paying Taxes 2012" report.
By comparison, the U.S. rate of 46.7 per cent gives that country a TTR ranking of 131.
"The rankings show from a global scale that Canada's heading in the right direction. The provinces and the federal government are working together to reduce red tape and the tax rate," he says. "Ontario is a great example where they've eliminated the provincial sales tax (PST) system and harmonized it. Also in Ontario, they harmonized the corporate tax system, marrying it a few years ago with the federal system."
The same can't be said of British Columbia. That province is in the process of rescinding its harmonized sales tax on the heels of a public referendum demanding it.
"It's not a good direction," he says. "Next year, when B.C. goes back to the PST system, they'll be filling out another form. So the red tape will go up."
Meanwhile, of the BRIC economies, Brazil has the lowest ranking in the time it takes to comply, placing 183rd with 2,600 hours, compared to Canada's rank of 37th at 131 hours.
"For some of the developing countries, filling out forms is a direct source of employment," he notes. "In our country, we look at it as being inefficient. Companies here would prefer to pay smart people to develop new products as opposed to paying to fill out forms."
Taxes an important factor in business location
And according to PwC's annual "Global CEO Survey", which sought the insights of 1,258 business leaders in 60 countries from September 2011 to December 2011, tax policy plays a more important role than immigration policy when it comes to CEOs site decisions across national borders. The study states 44 per cent of CEOs say tax policy was a significant factor in their site decisions, compared to 17 per cent who said that immigration policy is an important factor.
"Over the last few years taxes have hit the agenda in the CEO Survey," he adds. "Taxes are not usually the top aspect in the decision-making of where you set up your plant but it is in the top 10 . . . it's becoming more important."
