Canadian Finance Minister had earlier said that no stone will be left unturned in ensuring adequate reduction of the tax burden. Corporate tax rate will not be left out, he said. The target is a percentage reduction from the 22. 12% of the year 2007 to About 15% come 2012. It is important to note that this exclude deductions in mortgage investment and insurance corporation, income gotten from credit unions ,investment income of the Canadian controlled private corporations as well as small business deductions.
The corporate tax reduction however cuts across distribution tax on trusts and partnership for public offer. Part of his efforts is to foster harmonization of both the territorial as well as the provincial government with a focus on 25% combined corporate tax rate, said the Canadian finance Minister . Equally important is statutory corporate tax which allows for international comparison. The depreciation system is a measure of how fast investments are dished out. It is crucial to take a wider view of individual corporate tax system for international comparison.
A stingy tax depreciation policy as an exchange for a tax cut could lead to obliteration of the corporate tax reduction all relying on the nature of cost of capital. A public announcement was made in Canada in the year 2000 of the target reduction from 28% in 2000 to 21% by the year 2004. The rate was to focus interestingly on those areas of the economy that are highly taxed like the Goods and service sector to ensure that industries in Canada are beneficiaries of the competitive nature of the international tax system .
With this system personal income taxes were drastically reduced and other system of taxation were ensured to promote economic development and encourage participatory entrepreneurship. With the combined corporate tax rate reduction and other provincial regulation the outcome will be a reduction in the capital taxes below that of other developed countries like US by the end of year 2003 which places Canadian economy at an advantageous position. This will be about 5% below that of the US by the end of year 2006 with the resultant effect of fostering investment in the Canadian economy
An equilibrium point must be the target of the policy makers between what is wanted and not and also the challenge must be to arrive at a package that will be attractive to foreign investors and industries without losing out the hallmark markers of a sustainable economic policy.
A publication of : “Federal corporate tax rate reduction”. Retrieved from www. fin. gc. ca on 21 Nov,2008 Reint,G &Kristiana, K(2001). FDI and Corporate Tax Revenue:Tax harmonization or Competition? Finance Development Magazine Vol 38,No 2. Retrieved On Nov 19,2008 From www. imf. org.