International Corporate Tax Rates

Canada’s corporate-income-tax rates are fairly low compared to other G-7 countries. Advocates of further Canadian corporate-tax cuts have responded to this reality in two ways. First, they promote alternative measures indicating that corporate taxes are higher in Canada than elsewhere. Second, they compare Canada to a much broader range of countries.

In the latter vein, The Globe and Mail’s Report on Business has made much of KPMG’s “Corporate and Indirect Tax Survey 2007.” A June 27 news story and Neil Reynolds’ July 11 column presented this document as evidence that Canada’s 36% corporate-tax rate is quite high by global standards.

KPMG added up the corporate-income-tax rates of 98 countries and divided by 98, which generated a World average of 27%. However, this approach gives the same weight to Albanian corporate taxes as to American corporate taxes. My hunch was that a relatively large number of tiny “tax havens” were dragging down the World average.

One solution is to weight countries by economic size in calculating average corporate-tax rates. Jacinta Athaide, a summer student here at the Canadian Labour Congress, diligently copied tax and Gross Domestic Product (GDP) data into a spreadsheet to compute weighted averages.

Weighted by GDP, the average corporate-income-tax rate for the 98 countries is 34%, significantly higher than KPMG’s unweighted average and quite close to the Canadian rate of 36%. Canada – a country with abundant resources, modern infrastructure, an educated workforce, and the rule of law – can surely afford to charge corporations 2% more than the World average without any meaningful loss of “competitiveness”.

Another common claim is that Canada’s corporate taxes are high by OECD standards. Indeed, the unweighted average corporate-income-tax rate among the OCED’s 30 members is 28%, but this figure largely reflects eastern Europe’s low corporate taxes. Weighted by GDP, it rises to 35%. In other words, Canada’s corporate-income-tax rate is very similar to the average rate prevailing in the World economy and/or in the OECD economy.

Canada’s Corporate-Income-Tax Rate and the OECD Weighted Average

Another point is that Canada cut its corporate taxes far more sharply than the OECD: a drop of 9% versus one of 4% since 2000. Even if this reduction was necessary to get Canada in line with the OECD economy, there is much less justification for the future corporate-tax cuts to which Canadian governments have already committed, let alone the further corporate-tax cuts advocated by the Report on Business and others.