Canadian businesses lose their competitive advantage over U.S. peers
Washington, Feb 15 (IBNS): Analysts from Toronto-Dominion Bank (TD) and the Canadian Imperial Bank of Commerce (CIBC) highlighted in their recent weekly report that U.S. president Donald Trump's tax reform package has caused Canadian businesses to lose their competitive advantage to their U.S. peers, media reports said.
"Canada's formerly favourable position in corporate taxation has eroded considerably, with the U.S. now holding the edge," said economists at TD.
"[Tax reforms] along with growing NAFTA uncertainties, increases the likelihood of a slow bleed of investment from Canada to south of the border," they said.
Strategists at CIBC, meanwhile, pointed out that a lower tax rate in the U.S. could impact Canada's economic activity by making U.S. peers more competitive on mergers and acquisitions.
"With a revitalized tax code, CEOs have another reason to locate in, or worse yet, relocate to the US," Ian de Verteuil of CIBC was reported to state.
U.S. lawmakers' $1.5-trillion U.S. tax reform bill, known as the tax cuts and jobs act (TCJA), had reduced the U.S. corporate income tax rate from 35 percent to 21 percent.
This is the biggest change to the U.S. tax code in over 30 years and gives other business owners a 20 percent deduction on business income, among other changes.
Prior to this law, U.S. had reportedly one of the highest business tax rates among G7 countries, which had not declined over the past 20 years.
Canada, meanwhile, had one of the lowest corporate tax rates in the group and rates had been in consistent decline for several years.
"For Canadian companies, the focus has so far been on companies that win from the lower overall level – because they have large U.S. operations and were accruing taxes at a higher rate," Verteuil was reported to state.
Derek Burleton, economist at TD said that present circumstances has necessitated Canadian government to take action in the upcoming budget.
"We do not believe that a tit-for-tat reduction in tax rates is necessary to guard against these risks, since taxes form only one part of the competitiveness equation," Burleton was reported to state.
"Maintaining longer term fiscal sustainability, increasing the efficiency of tax systems through revenue-neutral tax reforms and well-thought-out investment in human capital and skills training can achieve the similar aim of improving competitiveness," he added.
Canada's Finance Minister Bill Morneau is expected to meet with leading economists in Toronto on Friday for a pre-budget consultation.
(Reporting by Asha Bajaj)
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