Perrin Beatty is president and CEO of the Canadian Chamber of Commerce.
Joy Thomas is president and CEO of the Chartered Professional Accountants of Canada.
The last time Canada undertook a comprehensive review of its tax system, humankind still hadn’t set foot on the moon. In the five decades since, repeated cutting-and-pasting has left Canadian taxation cumbersome and inefficient.
Much has changed since the Carter commission created our now-outdated tax system. New technologies, global supply chains and international competition have disrupted entire industries. Governments worldwide are competing to harness innovation by trying to understand how new developments such as artificial intelligence and the sharing economy will reshape our lives and how we work, including how we tax.
A competitive tax system should provide businesses with the capital to invest in the technologies and tools needed to adapt to the speed of change and thrive in this new economy. It should help attract and retain the best and brightest, drive business investment decisions, unleash innovation and empower the next generation of change makers.
Digital technologies also provide the opportunity to take tax compliance to the next level by further improving standardization and automation, promoting greater efficiency and elevating the customer experience. Properly addressing how we tax the digital economy can level the playing field for Canadian businesses and ensure that digital companies are treated in a fair and growth-friendly way.
Currently, Canada’s tax system hampers investment and talent attraction. Professional accountants in leadership positions cite the overall tax burden in this country as the factor having the greatest impact on Canada’s level of business competitiveness with the United States, according to a recent CPA Canada Business Monitor survey.
Compared to a year ago, more than two-thirds of CPA business leaders view Canada as a less competitive place to invest and do business versus the United States. A recent statement by the International Monetary Fund recommends “it is time for a careful rethink of corporate taxation to improve efficiency and preserve Canada’s position in a rapidly changing international tax environment.”
Canada’s corporate income tax rate is now higher than both the United States and the OECD average – and Canada lags behind Britain, the United States and France in terms of G7 countries. Canada’s top combined personal income tax rate is above 50 per cent in seven provinces and is one of the highest among OECD countries. As a result, Canadian foreign direct investment hit its lowest level since 2010 last year. Cross-border mergers and acquisitions generated a net withdrawal of funds for the first time since 2007.
Simply welding new parts onto an expired model, complete with the outdated principles that underpin it, will not resolve our competitiveness issues. Through a comprehensive review, we can explore robust solutions to the competitiveness question that are in line with Canada’s fiscal position.
Given the competitive environment that we’re in, we need to seize on the opportunities that are within our control. In the immediate term, we should consider accelerated capital cost allowance deductions to encourage investments in technology and skills. Adjusting the tax mix and simplifying the administrative complexity of our tax system can help ensure Canada is a preferred destination for the talent, skills, and investment needed to thrive in a changing economic landscape. What we need is a comprehensive review, with everything on the table, to create a modern tax system that helps build a Canada that wins.
What does that look like? We offer a few thoughts on the potential of a revamped Canadian tax framework. It should be:
- as simple, fair and efficient as possible;
- competitive for businesses and individuals alike;
- aligned with the business models, technologies, and economy of today and the future;
- reviewed regularly to ensure our businesses remain agile and keep up with the accelerated pace of change.
If Canada is serious about adapting to Industry 4.0, we need to focus on how governments should respond to disruption and new global business models. It’s about time we recognized that a modernized tax system can be a key driver of innovation and growth.