Changes still needed: Canadian tax system now ranks 105th in global tax survey

TORONTO, November 12, 2008 — While Canada is gradually reducing its corporate income tax and embracing other positive tax system changes, its total tax rate rank has fallen from 99 to 105 out of a total 181 countries according to an annual study from the World Bank, IFC, and PricewaterhouseCoopers (PwC) Paying Taxes 2009.

"It's worth noting that corporate income tax is only one of many taxes that business has to bear," says Tom O'Brien, a partner with PwC Canada's tax practice. "In our recent Canadian Total Tax Contribution survey, we found that corporate income tax accounts for just two of 49 taxes and 18 other payments to government at the federal, provincial and municipal levels that businesses may bear or collect. As such, the 105th ranking signifies that changes are still needed in comparison to the reforms being proactively undertaken in other countries."

The report draws on the Doing Business 2009 report that measures the ease of paying taxes for mid-size domestic companies in 181 economies, analyses tax systems and tracks related reform efforts. It includes examples of how 18 economies have made use of data from the previous global Doing Business reports and provides insight into discussions with governments and other stakeholders generated by earlier Paying Taxes reports.

The report this year shows that tax authorities worldwide are overhauling tax systems by reducing taxes, streamlining administrative processes and modernizing payment systems. Thirty-six economies made it easier to pay taxes. This year's top reformer was the Dominican Republic. In 2007/08, it lowered the corporate income tax from 30% to 25%, eliminated several taxes (including stamp duty), reduced the property transfer tax, and implemented an online filing and payment system.

The most popular reform was reducing corporate income tax rates (in 21 economies). Five OECD high-income economies reduced corporate income tax rates, including Canada. Canada is gradually reducing the corporate income tax to 15% by 2012, as part of ambitious reforms in its tax system. The reforms also include abolishing the 1.12% surtax and introducing accelerated depreciation for buildings (10%) and computers (50%).

In terms of time to comply, this year Canada ranked 30th for 119 hours versus 28th last year. For number of payments, Canada ranked 16th for nine taxes versus 15th last year. In comparison, top performer the Maldives, has one tax and zero hours to comply. Lowest ranked Belarus has a total of 112 total tax payments which take companies in Belarus 1188 hours to comply.

"Canada has a multijurisdictional tax regime and the provincial taxing authorities continue to be concerned about the domestic competitiveness of their tax regime and the ability to attract international investment and raise revenues," says Tom O'Brien, a partner with PwC Canada's tax practice. "However, the desire for domestic competitiveness must be balanced with the need to create a tax system that is easy for businesses operating in more than one Canadian jurisdiction to administer. As the number of provincial specific taxes and credits increase, so does the time spent to comply."

The study also examined the use of tax incentives. Globally, of those who responded, over 40% of contributors said that their economy has a special regime for Small and Medium Sized Enterprises ('SMEs'). The average was generally higher in the EU, G8 and OECD groupings. All of the BRIC (Brazil, Russia, India and China) countries have an SME initiative regime.

A similar number of companies globally offer incentives for research and development activity. "For companies that are performing research and development (R&D), Canada has one of the world's most generous tax credit programs," comments O'Brien. "Canada's R&D tax credit program can provide additional necessary funding for companies who are carrying on qualified R&D activities. Known as the Scientific Research and Experimental Development (SR&ED) program, it allows a level-based investment tax credit on qualifying SR&ED expenses incurred in Canada."

For information about Paying Taxes, visit www.doingbusiness.org/taxes. For information about IFC, the World Bank or PricewaterhouseCoopers, visit www.ifc.org, www.worldbank.org, or www.pwc.com/ca/payingtaxes

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