TORONTO—The global trend of the past few years towards a low-rate, broad-base business tax environment is expected to continue, as worldwide economic growth shows no signs of improving and countries introduce new or improved incentives to compete for business investment that will stimulate growth.
This is according to Ernst & Young’s (EY) 2017 Global Tax Policy Outlook, which combines insights and forecasts from EY tax policy experts in 50 countries.
The report says many world governments are compelled to compete with each other and attract investment through different tax changes.
Of the 50 countries represented in the survey, 30 per cent intend to invest in broader business incentives to stimulate or sustain investment, and 22 per cent plan to introduce more generous research and development incentives in 2017.
However, EY says Canada is bucking the global trend of investment-stimulating policy.
Here, the government has been more focused on the personal income tax side and redistributing the tax burden so the highest income earners bear more and middle income earners bear less.
To this end, Canada’s corporate income tax rate (the average combined federal/provincial rate) increased marginally in 2017, by 0.2 per cent.
EY says this in itself is unlikely to deter investments, but it is slightly out of step with Canada’s global peers. 40 countries represented in the study reported no change or anticipated change to their corporate tax rates, while rates continue to decline in a number of other jurisdictions, particularly in Europe. Canada is one of only two countries surveyed where the rate increased.
The motivation for world governments to implement new tax and investment incentives has been spurred on in large part by the possibility of tax reform in the United States.
The study finds that the possibility of President Donald Trump and his Republican Congress passing a tax reform package in the U.S. has resulted in Canada taking a wait and see approach to taxes until new legislation is adopted.
The threat of a U.S. border tax, which according to EY could have a significant impact on cross-border trade, is particularly concerning.
“Tax reforms emerging in Europe and the U.S. are putting pressure on governments to find creative ways to compete for business investment. Canada has improved its international tax competitiveness over a number of years, but it’s at risk of losing some of this ground, in particular if the U.S. goes ahead with a tax reform package that includes significant rate reductions,” said Fred O’Riordan, EY Canada’s national advisor, Tax Services.
It is unclear whether our federal government will change its current course based on what Trump’s administration does in terms of tax reform, but the global trend appears to be shifting towards attracting business investment through incentives and doing whatever possible to maintain a competitive edge.