KPMG on Corporate Taxes
Yesterday, I appeared on CBCâ€™s Lang & Oâ€™Leary Exchange regarding corporate taxes in response to Ignatieffâ€™s announcement and KPMGâ€™s 2010 Competitive Alternatives report. (To watch the video, search for â€œlangâ€, click â€œMost recentâ€, select March 31, and go 13 minutes in.)
My co-panellist, John Risley, seemed more interested in talking about the â€œdinosauricâ€ nature of unions and the need to â€œreformâ€ healthcare in Canada than about corporate taxes. So, we never really got down to brass tacks on the KPMG study. What did it actually indicate about corporate taxes?
First, â€œtaxes typically represent up to 14 percent of location-sensitive costs.â€ Since corporate income tax (CIT) is only one of the taxes paid by business, it alone accounts for an even smaller percentage of costs. Therefore, changes in the CIT rate have very little effect on total business costs.
Second, Canadaâ€™s effective CIT rate is about 4 percentage points below the next lowest country (Holland) and about 10 percentage points below the other countries examined (see exhibit 5.10 on page 60 of volume I). So, Canada could raise its CIT appreciably and still have a lower CIT than our main competitors.
Third, Canada had the second-lowest costs overall. The current round of federal CIT cuts was introduced in the 2007 Economic Statement. Looking back before that, Canada hadÂ also ranked secondÂ in the 2006 Competitive Alternatives report (PDF).Â Apparently, the latest CIT cuts have notÂ affected our overall ranking.