Canada's Corporate Income Tax Rate in the Middle of the Pack but Still Falling Yet, Canada goes against long-term global trend of raising indirect tax rates

TORONTO, Nov. 23, 2011 /CNW/ - Canada's corporate tax rate has dropped by more than 16% over the past 11 years, consistent with the global trend according to KPMG International's latest annual survey of tax rates affecting business.

The survey found tax rates on corporate profits have declined sharply around the world over the past 11 years but this era is almost over as year-over-year corporate tax rate cuts have become much smaller. At the same time, value added tax and goods and services tax regimes have proliferated around the world, rising each year to higher rates and applying to more items.

Canada has bucked this trend by lowering its federal GST rate. Also, in the provincial context, British Columbia is moving from a harmonized sales tax back to its former provincial sales tax regime.

As in previous years, the survey compares corporate and indirect tax rates from more than 125 countries. The survey shows that the world's average corporate income tax rate has fallen in each of the past 11 years, from 29% in 2000 to 23% in 2011.

Canada's general corporate tax rate of 28% for 2011, which includes federal and provincial tax, compares favourably with the U.S. corporate rate of 40% but is still higher than the OECD average of 26% and the European Region average of 20%.

Canada's corporate tax rate has dropped by 3% to 28% in 2011 (from 31% in 2010) but the decline for 2011 in most regions of the world was much smaller — only around 1% or less on average. Based on these results, the survey says it seems certain that the decade-long era of sharply declining corporate tax rates is almost behind us.

"Canada's corporate tax rate falls around the middle of the pack among the OECD countries," said Elio Luongo, KPMG's Canadian Managing Partner for Tax. "But Canada's general corporate tax rate is anticipated to continue to fall in 2012, when the federal tax rate will be 15%, versus 16.5% in 2011."

The lowest average corporate tax rates are still found in the European region (including non-EU countries), where the rate has increased slightly since 2010 to stand at 20%.

"Headline corporate income tax rates are important but they are only one factor in comparing country-to-country tax burdens," said Luongo. "You also have to consider sales tax, property tax, capital tax and other local business taxes. International companies should analyze all of these costs carefully and how they interact."

The survey also compares value-added type indirect taxes (Goods and Services Tax (GST) or Value-Added Tax (VAT)). The survey includes 119 jurisdictions around the world that have such indirect taxes and indicates that the average rate is 15%, with little movement over the past three years.

Canada's indirect tax rates vary between 5% GST-only in Alberta and 15% HST in Nova Scotia, which is lower than the OECD average VAT rate of 19% and the European countries' average of 20%.

"As the survey points out, businesses in Canada also have to contend with the harmonized sales tax or retail sales tax imposed by all the provinces, except Alberta, which effectively increases their indirect tax burden beyond the five percent GST," said John Bain, a partner in KPMG's Indirect Tax Group in Canada.

It's possible to compare Canada's corporate income tax rate with the rate in the U.S., Canada's neighbour and biggest trading partner, but it's not easy to compare indirect tax rates because the U.S. does not impose a national value-added tax. Instead, businesses have to deal with a complex system of "sales and use" taxes imposed by most states and many local governments at various rates.

KPMG's 2011 Corporate and Indirect Tax Rate Survey is available on KPMG's website.

New online tax rate tool
KPMG has also released a new interactive online tax rate tool available at www.kpmg.com/taxrates.

The new online tool allows users to view and compare the latest corporate and indirect tax rates from across the globe. With the new tool, users can:

  • Compare a particular tax rate (e.g., corporate tax) between up to five countries
  • Choose the years they want to compare
  • View the corporate and indirect tax rates for a particular country.

About KPMG in Canada

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 150 countries and have 138,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

KPMG's Canadian website is located at www.kpmg.ca

SOURCE KPMG LLP

For further information:

Media Contacts:

Shilpa Kotecha
Manager, Media Relations, KPMG
(416) 777-8918
skotecha@kpmg.ca


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