Ottawa, May 2, 2016–Taxation systems in Canadian provinces can work against the objective of stronger economic growth and wealth creation, especially in how payroll and provincial sales taxes are applied, according to a new Conference Board of Canada report from its Centre for Tax Analysis, Fiscal Incentives and Competitiveness.
The Conference Board’s analysis of provincial tax burdens indicates that growth and wealth creation not at the forefront of tax system design.
Ottawa, May 2, 2016—Taxation systems in Canadian provinces can work against the objective of stronger economic growth and wealth creation, especially in how payroll and provincial sales taxes are applied, according to a new Conference Board of Canada report from its Centre for Tax Analysis, Fiscal Incentives and Competitiveness.
- Sales taxes that are value-added and harmonized with the federal system reduce the tax burden on businesses compared to conventional retail sales taxes still in place in several provinces.
- Payroll taxes significantly increase the business tax burden in the four provinces that have them.
- Quebec has the highest tax burden for both business and personal taxation. Saskatchewan and Alberta are among the provinces with the lowest personal and business tax burdens.
This report, Benchmarking Provincial Tax Burdens, assessed and compared the tax attractiveness of each province based on the calculation of provincial tax burden ratios for businesses and households. The analysis is based on data through 2011 for business taxation and 2012 for personal taxation (which were the most recent data available at the time this research was completed).
“The tax burden is a key factor affecting both the cost of living and the cost of doing business,” said Julie Adès, Senior Economist. “For businesses, sales and payroll taxes stand out as measures that shape overall tax and business competitiveness.”
“Personal income tax rates get a large share of public and policy attention, but social security contributions, sales and property taxes and marginal effective tax rates may also affect individual and family decisions.”
This report does not assess the goods and services financed by governments through tax revenues.
In both business and personal taxation, Quebec has the highest tax burden among the provinces. On the business side, Saskatchewan, New Brunswick, Alberta, and Newfoundland and Labrador have the lowest net tax burden ratios (expressed as a share of gross output in the province’s business sector). Alberta, Saskatchewan, British Columbia and Manitoba have the lowest personal tax burden ratios (expressed as a share of personal income in that province).
The rankings on business taxation are greatly affected by payroll and sales taxes. Each of the four provinces with payroll taxes—Quebec, Ontario, Newfoundland and Labrador and Manitoba—slip significantly when these levies are included in the analysis.
Businesses in provinces with co nventional retail sales taxes—Manitoba, Saskatchewan, and Prince Edward Island (in 2011)—face higher average sales tax burdens than those in provinces with value-added taxes, such as a harmonized federal-province sales tax. Since 2011, Prince Edward Island has adopted a harmonized sales tax; meanwhile, British Columbia repealed its harmonized value-added sales tax to return to a retail sales tax.
Whereas businesses only pay value-added sales taxes once, retail sales taxes can be applied to product inputs many times before the final sale. This form of tax raises business costs and discourages business investment.
Business taxation in the analysis includes: provincial corporate income taxes, social security contributions, payroll taxes, and property taxes, and provincial sales taxes, as well as the provincial segments of the HST.
Personal taxation includes: provincial personal income taxes, social security contributions paid by employees, property taxes, and provincial sales taxes as well as the provincial segments of the HST.
The analysis reveals that each province has a progressive system, as lower-income individuals pay the lowest implicit personal income tax rate.
Join Julie Adès and Matthew Stewart for a live webinar to discuss the findings for all provinces on June 1, 2016 at 2 PM ET.
The report was produced for the Centre for Tax Analysis, Fiscal Incentives and Competitiveness (TAFIC). Launched in 2014, TAFIC provides Canadian business leaders and policy-makers with credible, leading-edge quantitative research on all aspects of the Canadian system of taxation and fiscal incentives. Using sophisticated econometric tools to measure the impact of proposed reforms on the Canadian economy, TAFIC publishes evidence-based and accessible reports on key issues related to taxation and fiscal incentives.