By: Dana Wagner on
Tom Mulcair, NDP Leader and candidate for Outremont, in the leaders debate on September 17, 2015
Canada’s combined federal and provincial corporate tax rate of 26.3 per cent is just below the middle of the pack among close trading partners. The corporate tax rate range for Canada’s top ten import and export trading partners is from a low of 16.5 per cent (Hong Kong) to a high of 39 per cent (United States).FactsCan Score: False
Taxes on individuals and businesses came up throughout the second leaders debate on the economy. Tom Mulcair, the NDP leader, spoke about his party’s plan to raise the corporate tax rate and criticized the Liberals and Conservatives for their records on taxing companies.
Mulcair said, “we are going to be asking Canadian large corporations to start paying their fair share. They’re the only Canadians who don’t right now. Mr. Trudeau and Mr. Harper are of one mind. They thought that dropping their taxes by tens of billions of dollars, way below that of our close trading partners, was a good idea.”
This check will focus on the claim that Canada’s corporate tax rate is “way below that of our close trading partners.” What counts as “way below” is subjective, but a generous measure is calling a difference of 5 or more per cent “way above” the Canadian rate.
Who trades with Canada?
The top ten export trading partners in 2014 were: United States, China, United Kingdom, Japan, Mexico, Hong Kong, South Korea, Italy, Netherlands, Belgium.
The top ten import trading partners in 2014 were: United States, China, Mexico, Germany, Japan, United Kingdom, South Korea, Italy, France, Taiwan.
What are their tax rates?
Canada has both federal and provincial taxes on corporations. That means companies pay a different combined (federal plus provincial) tax rate depending on their home province. Because some countries have just one level of government that levies a corporate tax, it’s important to look at combined rates when making country comparisons. In Canada, the combined tax rate is calculated by adding the federal rate of 15 per cent with the provincial average of 11.3 per cent, for a total of 26.3 per cent.
Using two different data sources to account for missing countries plus different data collection times, here’s how the countries stack up. Rates logged by the Organisation for Economic Cooperation and Development are in the left column, and those from consulting firm KPMG are on the right:
Canada sits almost in the middle of the pack. There’s a larger difference between Canada and its top trading partner at the high end (13 per cent), than its top trading partner at the low end (10 per cent) – but not a huge one.
Now, the trade volume with all partners is not equal. Canada’s trade relationship with the United States outstrips the others in size. About 76 per cent of all Canadian exports, and 67 per cent of imports, go to the US, according to Statistics Canada data for 2014.
If Mulcair had referenced only the US, the statement would be true. But he did not. And although the US corporate tax rate falls far above Canada, the next two trading partners in line, China and the UK, fall below.
It’s possible that by “close trading partners,” Mulcair meant geographically close. In that case, we’re looking at the US and Mexico, which have rates of 39 and 30 per cent, respectively. Again, Mulcair’s statement would be more accurate if he referenced just these two countries.
But “close trading partners” is likely to be interpreted in terms of a relationship, not geography.
Corporate vs personal taxes
The corporate tax is often used as a standalone figure to compare country competitiveness, but it’s worth noting that corporate taxes are not totally separate from personal taxes.
Some countries lower the corporate rate to get companies to stay, while raising personal income tax to compensate for lost revenue, said Kathleen Lahey, a professor of tax policy at Queen’s University. For example, Netherlands and Sweden “deliberately rebalanced per cent of total revenues raised via [corporate income tax] versus [personal income tax], with personal income taxes being much higher than Canada’s in order to keep highly mobile big companies in those countries,” Lahey said.
It is false to say Canada’s corporate tax rate is “way below” its close trading partners. Although Canada’s rate is much lower than that of its largest trading partner, the US, among the wider group of close trading partners, Canada falls just below the middle at a combined rate of 26.3 per cent.