Flaherty Missing Opportunity to Tax Smarter: C.D. Howe Institute

    TORONTO, Dec. 18 /CNW/ - Finance Minister Jim Flaherty's business tax
relief goals are a welcome start to tax relief, but should be accompanied by a
broadening of the corporate tax base to make taxes more neutral and fair and
enable future reductions, according to a report from the C.D. Howe Institute.
    In Flaherty's Missed Opportunity, Duanjie Chen, George Weston Analyst in
Tax Policy, says the federal government's Economic Statement made good
progress in October by promising a reduction in federal business tax rates by
2012, from 22.1 percent to 15 percent.
    Even after this reduction, however, the Canadian effective tax rate on
most services will still be sixth highest among the 30 member countries of the
OECD. (Effective tax rate comparisons account for international differences in
what is taxed and how, as well as at what rate.)
    More comprehensive tax reform is needed in Canada, says Dr. Chen. The
most critical is broadening the corporate tax system to treat taxpayers
equally, regardless of industry sector or activity. A big part of the problem,
says the report, is provincial retail sales taxes, which five provinces still
have. If the remaining provincial sales taxes were harmonized with the federal
Goods and Services Tax, the overall effective tax rate would, by 2012, drop
from 25.2 percent to 18.6 percent. Such a sweeping sales tax harmonization
would place Canada midpoint on the ranking of effective tax rates among the 30
OECD member countries.
    The federal government, says Dr. Chen, missed an opportunity to make
important changes to what and how we tax, not just at what rate. Future tax
initiatives should not repeat the oversight.

    For the e-brief go to http://www.cdhowe.org/pdf/ebrief_52.pdf.

For further information:

For further information: Duanjie Chen, George Weston Analyst in Tax
Policy; Finn Poschmann, Director of Research, C.D. Howe Institute, (416)
865-1904, Email: cdhowe@cdhowe.org

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