Tax time

February 24, 2013

The April tax filing deadline is nearing. For the IRS it’s 15-Apr, while in Canada it’s 30-April to file one’s income taxes. KPMG has published a paper on worldwide tax competitiveness which is interesting. In the North resource taxes are more important than corporate or income taxes in affecting economic activity.

The KPMG study for 2012 looked at worldwide corporate income taxes, ‘other’ taxes like capital property and sales, and statutory labour costs.  A few highlights:

• All countries except the US have a VAT or national sales tax.
• The US has about 40% of its states applying capital taxes in one form or another.
• Surprisingly Canada ranks #1 in R&D worldwide with its incentives delivered through its Scientific Research and Experimental tax expenditure program. Last year the Canadian government took budget measures which watered down the tax incentives under the program.
• Canada ranked #2 worldwide; the US ranked 8th in terms of KPMG’s total tax index. The US tax rates are higher than most of its competitors.

The northern economies are much more concerned with taxes derived from resources- oil and gas and mining royalties.

• Alaska has no state-wide income or sales tax. The state relies on oil and gas revenues for more than 90% of its budget. Alaska’s North Slope oil production is in decline and the major oil producers have decried the high level of state taxes on new production (~85% vs 55% in Alberta). Alaska and its municipalities rely on property/capital taxes. In Alaska municipalities levy sales taxes too.
• The Yukon has no sales tax. It’s income and corporate taxes are a bit lower than the provinces. It recently worked out a new royalty regime with Ottawa where the territory can keep up to $6 million in royalties before sharing with the senior government. Interestingly one of the First Nations with a mine on its category A lands has been receiving a royalty windfall, much to the envy of other First Nations.
• The NWT has no sales tax, but does impose a payroll tax of 2%.  It’s income and corporate taxes are a bit lower than the provinces.
• Nunavut has no sales tax but does have a 2% payroll tax.  It’s income and corporate taxes are a bit lower than the provinces.
• BC and Alberta have lower taxes than the Canadian average. BC has a sales tax of 7% that is melded into the national tax but will soon be separated. Alberta has no sales tax. Both jurisdictions are bleeding red ink due to low gas prices and other reasons.

Commentary

Generally the territorial tax rates are lower than the provinces. Alaska’s rates are lower than most of the lower 48.

The north can ‘under-tax’ its citizens due to formula financing (generous federal transfers to Canadian territories) and the depleting wealth coming from Alaska’s North Slope.

Sources

• a)http://www.kpmg.com/Ca/en/services/Tax/Focus-on-Tax/Documents/competitive-alternatives-focus-on-tax-english-v2.pdf



• b)http://www.commerce.state.ak.us/dca/osa/taxfacts.htm



• c)http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html