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Washington, Feb 14 (Canadian-Media): This week's report by analysts from both Toronto-Dominion Bank (TD) and the Canadian Imperial Bank of Commerce (CIBC) highlighted that U.S. recent tax reform package has caused Canadian businesses to lose their competitive advantage to their U.S. peers, media reports said.
"With a revitalized tax code, CEOs have another reason to locate in, or worse yet, relocate to the US," Ian de Verteuil of CIBC was reported to state.
It was also pointed out by strategists at CIBC that a lower tax rate in the U.S. could negatively impact Canada's economy by making U.S. peers more competitive on mergers and acquisitions.
U.S. tax reform bill worth $1.5-trillion, known as the Tax Cuts and Jobs Act (TCJA), had reduced the U.S. corporate income tax rate from 35 percent to 21 percent - the biggest change to the U.S. tax code in over 30 years and other business owners get a 20 percent deduction on business income.
Donald Trump. Image credit: Twitter handle
U.S. reportedly had one of the highest business tax rates among G7 countries, prior to this law, which had not declined over the past 20 years.
Canada, on the other hand, had one of the lowest corporate tax rates in the group and rates had been declining consistently for several years.
"For Canadian companies, the focus has so far been on companies that win from the lower overall level – because they have large U.S. operations and were accruing taxes at a higher rate," Verteuil was reported to state.
Derek Burleton, economist at TD reportedly said that present circumstances has necessitated Canadian government to take action in the upcoming budget.
"We do not believe that a tit-for-tat reduction in tax rates is necessary to guard against these risks, since taxes form only one part of the competitiveness equation," Burleton was reported to state.
"Maintaining longer term fiscal sustainability, increasing the efficiency of tax systems through revenue-neutral tax reforms and well-thought-out investment in human capital and skills training can achieve the similar aim of improving competitiveness," he added.
Bill Morneau, Canada's Finance Minister would reportedly meet with leading economists in Toronto on Friday for a pre-budget consultation.
(Reporting by Asha Bajaj)