Clarity on tax rates

One of the things that bothers me the most about corporate taxes is the fact they everyone always looks at tax rates rather than actual taxes paid. And in the world of corporate taxation those things couldn’t be much farther apart.

Let me explain my frustration.

Ontario still has the highest corporate tax rate in the country, according to the C.D. Howe Institute. At 42.2%, Ontario’s rate is also the highest among 36 industrialized countries excluding China, the think tank said in a report on business tax reform released on Tuesday.

What frustrates me is that they should be looking at actual taxes paid and not the ‘rate’ per se. Let me give you an example. Someone once said that Ford Canada makes no profit in Canada because the tax rate is higher. Basically, they jigger the production costing so that the profits are shown in Detroit where the tax rate is lower. I believe that CCRA is cracking down on this somewhat but I still think a lot of this goes on.

Particularly in a place like New Brunswick. If a call centre sets up here – they don’t give a rip about the corporate tax rate because they actually pay corporate taxes in Pennsylvania or Boston or elsewhere. I have never gotten a straight answer on this but I believe that you are supposed to pay taxes on the amount of business done in the country or province. But I don’t know this for sure.

That’s why I like Ireland. One of the lowest corporate tax rates in the OECD at 12.5% but massive amounts of corporate tax generated. Microsoft alone has paid something like $1 billion in corporate tax between 2001 and 2004.

The issue here is not Ontario, it’s New Brunswick. People talk about cutting the corporate tax rate to stimulate investment. Again, folks, do the math.

New Brunswick’s total estimated government revenue for 2006-2007 will be $5,882,645,000 ($5.9 billion). The total corporate income tax take will be $178,000,000. Now, for those of you that can’t do the math in your head that’s 3% of total government revenue from corporate taxes – it’s 12% in Ontario.

New Brunswick gets twice as much revenue from provincial property taxes, 32% more from gas taxes and 8 times more from Equalization that corporate income taxes.

That, coming full circle, is why the corporate tax rate means absolutely nothing.

It is a sure thing that the Irvings and McCain’s combined generate at least $2 billion or more in corporate profits each year. The general NB corporate tax rate is 13%. If these two firms paid the 13% rate in New Brunswick that would be $260 million – well above the total take from all companies – from just two firms.

Now before I get nasty responses, I have no way of knowing what McCain’s and Irvings make for profit – they may lose money for all I know. That’s an example – but I think it makes the point.

So, don’t talk to be about ‘corporate tax rates’. Don’t talk to me about cutting ‘corporate tax rates’. Talk to me about why New Brunswick only generates 3% of its revenue from corporate taxes while Ontario generates 12%.

We should be looking at attracting more industry and trying to generate more corporate tax – not less.

Clarity, folks. That’s all I ask.

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0 Responses to Clarity on tax rates

  1. Anonymous says:

    The one thing I have always questioned about the lower corporate tax rate strategy is has it ever been proven to work? And has the province conducted surveys of corporations asking wether it would intice them to come to NB or grow their business if already in NB?

    David, have you ever seen a study on this? I’m not being a smart Alec, just curious…

  2. Anonymous says:

    A little while ago I posted a link to a study from Maine that showed that tax rates are one of the last things that corporations look at. I know accountants at Revenue Canada who have told me that at least in Canada, corporations essentially pay what they want.

    If you want a real eye opener take a look at the audit division of Revenue Canada. A measly 10% do forensic auditing, and almost all that is dedicated to native reserves and home and small businesses.

    The point is well made that in a global economy, your corporate tax rate is pretty spurious. Keep in mind though that that is what the GST was designed for-to replace the manufacturers tax which companies were then supposed to pass on by lowering prices. Of course it didn’t happen, and companies laughed all the way to the bank.

    However, I was wondering when this would come up again, as I must admit to being somewhat confused. I am guilty of stating that NB and Ontario are in fact the LOWEST corporate tax jurisdictions, which I got from a website of a leading accounting firm. So I suspect it all depends on how you calculate the taxes, since there are many variants. The New England states I have recently discovered, do in fact have lower corporate tax rates at around 10%, but as said above, if we dug a little I suspect those states get far more of their income from it.

    I would almost be curious to see what would happen if New Brunswick were to simply say “we have no corporate tax”. We could can the whole department in Fredericton, and perhaps it would be a real drawing card, especially since they only supply 3%.

    In case you hadn’t heard, proportional representation is back on the table, maybe its time for an ‘economic development party’ or an ‘atlantica party’.