Businesses pay numerous different taxes. Tax systems across provinces and countries can be very different. Cross-jurisdiction comparisons of tax burdens often focus on statutory tax rates yet rate comparisons for a single tax do not provide the full burden of business taxes.
The Marginal Effective Tax Rate (METR) is a useful measure of the total tax burden placed on businesses because it includes all income, capital and sales taxes paid by businesses. METR analysis allows for comparison of diverse tax regimes throughout the world on a consistent basis.
Return on investment is an important criteria in business decisions. METR is defined as the portion of the rate of return on an investment paid through various taxes. It is calculated on a ‘marginal investment’, whose rate of return is sufficient to attract savings from investors on international capital markets.
The C.D. Howe Institute’s METR calculations include corporate tax rates as well as sales taxes on business inputs, tax credits, capital cost allowances, inventory, capital taxes and interest deductions. It includes both Provincial and Federal tax burdens.
Marginal Effective Tax Rate on Capital Investment in Canada
(Click chart to enlarge)