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Canadian Sales Taxes - not too high and not too low

UHY Indirect Taxes Report

(Dec 10, 2012) Canadian federal and provincial sales taxes are slightly above the average international level, according to new research by UHY, the international accounting and consultancy network.


Jon Levy, partner at UHY Victor located in Montreal, Canada observes “Canada’s economy and tax base has been comparatively solid in recent years. When this is combined with the general desire in the federal and provincial governments to keep taxes low, the result is a moderate level of sales taxes in Canada compared to other countries. Not too high and not too low – typically Canadian!”

Brazil and India tax consumers pay the highest levels of consumption and sales taxes in the world. In addition, European countries impose heavy sales tax burdens, which threatens to undermine recoveries in consumer spending in these countries by putting pressure on disposable incomes.

UHY tax professionals studied data from 22 countries* across its international network, including all members of the G8 and the developing BRIC economies. UHY calculated the percentage of the total price of a representative basket of goods and services that was made up of taxes and duties.

The Brazilian and Indian governments take 28.7% and 38% respectively of the total price of the basket of goods and services through taxes. On average, European governments are responsible for 15.5% of the price of UHY’s basket of goods and services.

Canada’s federal and provincial governments collect 14.7% in taxes on the sale of goods and services, which compares to an average of 13.8% for all countries, an average of 8.2% in the Asia-Pacific countries, and 12.3% in G8 countries.

Ladislav Hornan, chairman of UHY, says: “Brazil and India, like many developing economies, rely far more on sales taxes than income taxes compared to their more economically developed counterparts. Lower income taxes can have a positive effect on productivity, as it encourages individuals to work harder and entrepreneurs to generate more wealth.

“However, questions remain as to whether these high consumption taxes have hindered the growth of vibrant consumer element of those economies.”

UK and Europe struggle with high direct and indirect taxes
UHY says that while some developing economies balance high sales taxes with low income taxes, the UK and European governments levy some of the highest sales and income taxes in the world.

Ladislav Hornan says: “European economies have ‘zig-zagged’ over the past few years, limping into growth and slumping back into decline. Struggling with huge budget deficits, European governments have raised income and sales taxes. This has severely discouraged the consumer spending that could support a stronger recovery.

“Comparing the sales taxes in the US and Europe, it is clear where consumers have a better deal.” 

The UK, the Netherlands, and France have all increased their sales taxes recently – the UK raised VAT from 15% to 20% with two changes over the period of just two years. France plans further rises in 2013.

UHY adds that taxes on ‘necessity’ purchases in Europe are exceptionally high. There are six countries in the study where over 50% of the price of a litre of petrol is made up of taxes: Ireland (60.5%); France (59.1%); Germany (58.5%); Italy (57.8%); the UK (58%); and the Netherlands (50.2%).

Ladislav Hornan says: “European countries’ high indirect taxes have a particularly heavy impact on low earners. Necessary costs, like petrol or household energy bills, form a significant proportion of small, fixed incomes. The benefits of progressive income taxes are lost with high sales taxes.

Six of the ten countries with the highest taxes on household energy bills were European countries, with an average of 19% of energy bills in these countries being made up of tax.

UHY adds that the study shows that some countries’ tax systems have struggled to catch up with the rise of e-commerce.

In several countries, including India, Malaysia, Israel, the US, and Italy, sales taxes were levied on physical CDs but not on the mp3 versions of the same albums.

Brazil’s indirect taxes were some of the highest in the study. Brazil’s government was responsible for 28.7% of the cost of the basket.

Diego Moreira, executive director of UHY Moreira-Auditores in Brazil, and member of UHY, adds: “Direct taxes on individuals in Brazil are very low, but this means the tax burden falls heavily on businesses and consumption instead.”

“High indirect taxes can discourage spending and put pressure on business’ margins. Indirect taxes in Brazil are also highly complicated, which can make it hard for consumers to understand how the tax system operates. This complexity will add to business compliance costs too as they have to account for the different taxes.”



Download:


UHY-Indirect-Taxes-Report-FINAL-DEC-2012.pdf


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