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#SmartTax for the 21st Century

ABOUT #SMARTTAX

The most recent comprehensive review of the Canadian tax system, the Carter Commission, was struck by then Prime Minister Diefenbaker in 1962.

Several factors are impacting Canada’s current tax regime. The rapidly growing digital economy is changing how people and businesses purchase goods and services, some of which fall outside the existing systems of taxation. An aging population means shifts in consumption spending and slower future growth of the economy and the tax base.

While the buying habits of Canadians are shifting in the modern economy, so too are the decisions and priorities of investors. Canada relies heavily on strong export activity and foreign investment for our collective prosperity.

If our globally-facing industries and investment climate are not competitive, we will struggle to attract productive business investments that support the scaling up of companies, job growth and indirect benefits at the community level. The data shows that Canada’s competitive ranking among advanced economies is slipping, and that we are losing ground to other countries in the effort to attract direct investment and our share of trade.

Not only do these trends raise questions about the future of our economy, they also risk the ability of governments to collect revenues in a sustainable manner to meet the demand for services – including health care.

BCBC PRINCIPLES OF #SMARTTAX POLICY

Taxes fund public spending on programs and infrastructure that provide net benefits to society. Tax system design must balance three core principles: equity, efficiency and simplicity.

EQUITY

The tax burden should be fairly distributed across individuals and across businesses. The tax system should not give advantages to some individuals or business structures over others in conducting similar economic activities (“horizontal equity”). The tax system as a whole should be progressive, with higher-income individuals contributing more tax in dollar and percentage terms (“vertical equity”).

EFFICIENCY

All taxes distort the choices households and businesses make by altering their incentives to work, invest, save or consume. The extent of forgone economic activities varies from tax to tax reflecting the extent to which they affect behaviour. Taxes should have the lowest possible net cost to society beyond the revenue that is raised.

SIMPLICITY

The tax system should be based on clear principles so that it is simple and easy to understand. It should provide consistency in the tax treatment of economically similar activities. It should minimize uncertainty, compliance and enforcement costs.


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