C.D. Howe Institute has released statistics that reveal the ten nations with the highest average effective tax rates on business capital investments.
- Congo ... 55.7% avg. tax rate
- China ... 46.9%
- Argentina ... 44.3%
- Brazil ... 38.8%
- Germany ... 38.1%
- United States ... 38.0%
- Russia ... 37.6%
- Canada ... 36.6%
- Japan ... 32.2%
- France ... 32.1%
The effective tax rate includes corporate income taxes, sales taxes on capital purchases and other capital-related taxes. Higher effective rates discourage businesses from making capital investments in new machines, structures, land or inventory.
Simply put, the additional burden of having to pay a high effective tax rate lowers an investment's risk-return to the point where many executives say "Why bother?" and look for investments with higher returns - often in foreign countries.
The scenario is even more grim for Ontario, the province in Canada where the author of this article lives. Ontario has an effective tax rate of 42%, the fourth highest in the world behind Congo, China and Argentina. High taxes at home mean that Ontario businesses have less money to invest in domestic companies and instead are attracted to larger markets like China, Europe and the U.S. despite comparable tax rates.
Back in the '60s Ontario's jingo was "A place to live and a place to grow ... Ontari-ari-ario". From a global trade perspective, high taxes may have changed that song to "A place to live and a place to slow ... Ontari-ari-ario."
And The Winners Are...
The following nations encourage business development by imposing average effective tax rates that are more competitive.
- Mexico ... 13.8%
- Singapore ... 11.5%
- Ghana ... 9.9%
- Ecuador ... 8.2%
- Ukraine ... 7.7%
- Hong Kong ... 6.1%
Countries with reduced tax rates show higher productivity. Those nations also benefit from greater investments, savings and entrepreneurial risk-taking. All these positive factors drive economic growth and strength in international trade.
That may be why Canada chopped its rate from 39.1% in 2005 to 36.6% this year.
Many analysts say that rate has to drop more dramatically. Without serious tax reforms, Canada and Ontario in particular will not be competitive on the global stage.
Sources for this ArticleC.D. Howe Institute; Toronto Star September 21, 2006 edition
For a list of source materials complete with links to the most current information on country-specific GDP, trade partners, imports and exports, visit the Richest Research Sources panel at the top right of the World’s Richest Countries website. That site is a reference toolkit developed specifically for international trade researchers.
