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Maybe we should re-think thatLast updated 2 hours ago A corporate tax review that would reduce trade distortions and make industry and manufacturing more competitive should be a priority for Canada. Photo by Brent Lewin/Bloomberg via Getty ImagesAlthough tariffs are top of mind these days it isn’t just tariffs, quotas and subsidies that impact our trade balance. Taxes can have an even more powerful effect on trade. We ignore that at our peril.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorWhat if I told you we impose taxes that exempt imports from other countries but tax our own exports to those countries? Not very smart, you might say, but that’s precisely what the corporate income tax does. Corporate taxes add to production costs just as much as wages and capital costs do, thus making it more expensive to export goods and services from Canada. But since Canada’s corporate income tax is not paid by foreign companies exporting to Canada, their products enter Canada tax-free (although foreign companies do pay corporate tax to their home governments).Consider the auto industry, which is currently being hurt by United States tariffs. When a car company exports a vehicle to the United States, the cost of that vehicle includes corporate income taxes, municipal property taxes and sales and excise taxes.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againIn 2024, motor vehicle and trailer manufacturing paid $1.8 billion in income taxes — an amount equal to 30 per cent of their $5.9-billion wage bill. With a profit margin, net of all taxes, equal to only 3.3 per cent of revenues, it’s no surprise that U.S. tariffs of 25 per cent can severely damage Canadian auto exports.Other countries levy their own export-inhibiting corporate taxes. The U.S. undertook a dramatic reform in 2017 that reduced its corporate income tax rate below Canada’s and provided preferential write-offs for investments in machinery. To avoid becoming uncompetitive, Canada responded with its own accelerated depreciation measures. The most favourable provisions went to manufacturing companies that could expense both machinery and structure expenditures, which is equivalent to a double tax deduction for capital financed by debt.Canada is unique among OECD countries in taxing manufacturing much more favourably than any other industry. As Philip Bazel and I have shown in our competitiveness studies, the current effective tax rate on marginal investments is virtually zero for manufacturing but 18 per cent for services. Even so Canadian manufacturing’s share of GDP fell from 17 per cent in 1999 to nine per cent in 2022, due in part to growing manufacturing competitiveness in Asia and elsewhere.A far better approach to correcting export-inhibiting corporate taxes is to reduce taxes for all industries. In 1998 Ireland reduced its general corporate income tax rate for all industries from 36 per cent to 12.5 per cent. This was after the EU had challenged its special 10-per cent rate for manufacturing as state-aid. Although Ireland imposes some other taxes (such as a 7.5-per cent stamp duty on non-residential real estate transfers), it applies these taxes uniformly across industries.In 2021, Bazel and I estimated Ireland’s marginal effective tax rate on capital was 18.2 per cent on manufacturing and 17.5 per cent on services — not much different, as is the case in all other OECD countries except Canada. Ireland’s use of tax policy to improve its competitiveness and reduce trade impacts has enabled it to become one of the richest OECD countries today, with per capita gross national income equal to US$87,930, compared to Canada’s US$56,420. Low corporate taxes have also attracted manufacturing investment. The sector’s share of Irish GDP rose from 24 per cent in 1999 to 34 per cent in 2025.Other taxes also affect business competitiveness, including fuel taxes and carbon taxes on energy. To protect its industries, the EU recently adopted a “carbon border adjustment mechanism” (CABM) — essentially a tariff to prevent carbon leakage. Its biggest impacts will be on steel, aluminum, cement, iron, fertilizers, electricity and hydrogen, which will affect consumer prices and business input costs. Andrew Puzder, U.S. ambassador to the EU, has argued the carbon levy is no different than a tariff protecting EU industries from import competition. He likened the CABM to Trump’s “Section 232” tariffs on aluminum, steel and derivatives to address foreign overcapacity “that threatens to hollow out its metals sector.” Of course, the EU counters, with some justification, that its carbon tariff applies equally to all countries, unlike the U.S. tariffs.In the 2025 federal election, the Liberals promised a carbon tariff that would begin in 2028. They also promised a review of the corporate tax system, though that now seems to be off the table. Given current trade frictions with the U.S., dropping the carbon tariff proposal would be wise. But a corporate tax review that would reduce trade distortions and make industry more competitive should be a priority item in the upcoming budget. Join the Conversation This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.