Good morning. I am Bruce Flexman, chair of the CICA Tax Policy Committee and president of the International Financial Centre of British Columbia, which looks to attract international business to Canada and British Columbia. On behalf Canada's 77,000 chartered accountants, I thank you, Chairman, for the opportunity to appear before the committee.
In my remarks today I will highlight our views on how Canada's competitiveness can be enhanced through measures that follow two tracks: making the country's tax system more competitive, simpler, more effective, and more efficient, and at the same time ensuring prudent fiscal management of the country's finances.
We applaud the government's commitment to reducing the general corporate income tax rate to 15% by 2012. Finance Canada's own analysis shows that for every 10% reduction in taxes on business investment, expenditure on machinery and equipment increases by 10%. Research also shows that most corporate taxes are borne by workers in the form of lower wages and that lower investment in machinery, equipment, and software hurts job creation and wages. Indeed, the U.K., in its most recent budget, and at a time of financial crisis, reduced its corporate income taxes.
In deciding whether to invest, businesses are driven by the need for certainty. In the current economic climate, it is crucial that the government remain visibly committed to reducing corporate tax rates. This is essential for attracting investment, enhancing Canada's competitiveness, and creating prosperity.
The complexity of our tax regime plays an equally important role in attracting investment. Every year, the World Economic Forum measures the global competitiveness of 133 countries around the world. The forum's most recent report shows that concerns over Canada's tax rates and tax regulations are among the top five most problematic factors cited by business executives in doing business in Canada. The report deems both the extent and effect of taxation and the total tax rate to be competitive disadvantages for Canada. Canada's tax system must be simplified to lessen this burden of compliance and to reduce complexity.
Our submission makes a number of points in this regard. Allow me to highlight two that were endorsed by the Advisory Panel on Canada's System of International Taxation.
Consolidated tax returns or loss transfers for groups of related companies are not permitted in Canada, despite the fact that more than two-thirds of OECD member countries now offer group taxation. The ability to transfer losses to other corporations within a group would reduce administrative and compliance burdens, improve cashflow within a group, and increase the harmonization of federal and provincial tax systems.
We acknowledge that in its December 2009 report, this committee recommended that the government review the implications of allowing consolidated tax reporting, and accordingly, the 2010 budget included a commitment by the federal government to explore the possibility of implementing a formal system of loss transfer or consolidated reporting for corporate groups. We urge the federal government to work with the provinces to facilitate the use of tax losses and credits within a group of companies.
There is also a significant cost associated with complying with Regulation 105, which imposes a 15% withholding tax on fees paid to non-residents for services rendered in Canada. Canadian businesses are frustrated by having to bear administrative responsibility for another person's tax liability. We urge the government to adopt a certification system, as the U.S. does, to shift the compliance burden at the withholding stage from the payer to the non-resident.
I would also add that we continue to believe that additional progress in harmonizing sales taxes is needed.
On the issue of retirement income, the CICA has raised concerns regarding the adequacy of Canada's retirement income system and urges the government to put in place further incentives for retirement savings.
We support the recent announcement by the government that an independent expert panel will examine federal programs that contribute to innovation, with a view to recommending how to maximize them, such as the scientific research and experimental development program. Under the SR and ED program, investment tax credits are fully refundable only for smaller companies.