There is therefore consequent decline in the investment projects and also there is outward mobilization of capital. With this resultant low capital, there is a decline in the productivity and labor and there is also a down regulation of wages. Jack smith in its words noted that there is conclusiveness in the economic studies that establish the fact that investment in a country is a function of the business tax that exist there.
He opined further that with a high tax placed on capital there is a reduction in foreign investment with subsequent paralytic effect on the economic growth. Majority of the OECD countries with policy of high corporate tax rate are witnessing the damaging effect of a rapid external flow of direct investment from foreign countries and a fall in the corporate tax revenue. If a conclusion and relationship could be established between these two opposing pattern, it will go a long way to solidify the concept of harmonization and competition in the tax system.
Effective marginal tax rate is used to assess whether a nation’s tax system is going up in order to make decision as an industry where and how much to invest. In the us treasury of 1992 which allows double taxing of profits from corporate organization In light of an assumption of equalization of the marginal tax rate and the statutory tax rate of the tax code in its assessment measurement . Let’s assume that under this condition the rate at which corporate income is taxed is represented as R and the taxation is done only once under the corporation income tax.
Furthermore, let’s assume that the individual income tax (as a reward from the capital or as a dividend) is re-taxed at a rate H In the overall the effective marginal tax rate on money from investment is gotten as R+(1-R)H,Which is the addition of both the shareholder and corporate tax rate. This reveals that employing double taxation scatter a lot of economic alternative. Establishment of business in Canada is both income–source as well as nature of goods and services dependent. The corporate tax rate of Canada has two dimensions namely the federal and the provincial.
When income is obtained from the likes of rentals and other property material, the tax on dividends and interest on such are at a higher rate in comparison to similar income gotten from business. Privately owned sector of the Canadian economy have succeed in availing themselves of reduction in taxes. Canadian controlled Private Corporation have hitherto enjoyed a low corporate tax rate which is part of Canada’s efforts to encourage small business organization . Canada is enjoying a healthy financial atmosphere occasioned by existing effective competition among elements of the Canadian corporate sector.