Business Tax Competitiveness

Topic Box from the 2009 Ninth Annual Benchmark Report

As the economy becomes increasingly global and experiences continual technological advances, the importance of physical location diminishes. A brief examination of some of the world's top economic growth performers illustrates that BC and Canada share many of the same ingredients that contribute to success: a highly-educated population, advanced transportation and communications infrastructures, and export-oriented production.

The only key difference appears to be that Canada's effective tax rates are far above those of competing jurisdictions.

While British Columbia's and Canada's corporate tax rates appear to be competitive with other global jurisdictions in terms of statutory corporate income tax rates, this does not always present a true picture of the real costs investors face; a variety of other taxes and tax-related factors combine to influence the effective tax rate investors pay.

Capital taxes, sales and excise taxes, inventory and depreciation deductions, and personal and investment taxes all affect the rate of return that a business receives on its investment.

It is this expected rate of return that any potential investor will use in comparisons with other jurisdictions. By limiting investor returns, high effective tax rates reduce the likelihood of investments in productivity-enhancing capital projects and new technologies that could otherwise serve to raise wages and increase living standards.

Canada had the third-highest effective tax rate among the 20 countries reviewed in 2009 and was nearly seven percentage points above the simple average effective tax rate on capital.

Planned federal and provincial tax cuts will help to further reduce rates. For example, British Columbia and Ontario will adopt a Harmonized Sales Tax in July 2010, which will cause considerable decreases in their marginal effective tax rates. Consequently, Canada's rate in 2010 will be 22.9 percent. By 2013, when Canada's corporate tax reduction is entirely realized, its rate is expected to be 18.9 percent, a decrease of nearly nine percentage points over four years.

A comparison of effective tax rates shows that BC had the fourth highest among the provinces in 2009, nine percentage points above Alberta, and four percentage points below Ontario. With the upcoming provincial tax reform, BC's effective tax rate will drop to 21.7 percent in 2010, 18.9 percent by 2013 and 17.9 by 2018. Its rate will be equal to Canada's in 2013 and below it in 2018.

Competitive tax rates and fiscal policies are key factors found in Canada’s most successful competitors. Potential business investors also look for a number of other factors including a skilled and educated labour force, efficient infrastructure, easy access to services inputs and transportation routes.

British Columbia is making significant progress towards being a better place in which to do business. The recommendations contained in the Board's report: Investment in British Columbia: Current Realities and the Way Forward discusses this topic in more detail.