Global Daily Tax News, OECD Urges Canada To Raise Tax On SMEs, VAT, (May 29, 2025)

In its newly released annual Economic Survey for Canada, the OECD has recommended that the Government withdraw tax relief measures for small- and medium-sized businesses.

The report says tax advantages for SMEs should be reduced, warning that preferential tax treatment for smaller firms could create distortions. It recommends the preferential corporate tax rate for SMEs should be discontinued and research and development tax incentives harmonized across small, medium-sized, and larger firms.

Further, the report recommends that Canada increase the goods and services tax burden. According to the OECD Revenue Statistics, revenues from VAT/GST represent only about 13 percent of total tax revenues in Canada, compared to an average of 21 percent in the OECD. The OECD has said Canada could lower personal income tax burdens if it were to reduce the use of the zero rate under the GST regime, including by installing tax on supplies of basic groceries, agricultural products, and prescription drugs.

The report welcomes the substantial revenue generated from recurrent taxes on immovable property, which make up almost nine percent of total tax revenues, compared to only three percent for the OECD, noting these are considered one of the more economically efficient forms of taxation.

The report concludes that Canada has room to raise environmental taxes. Taxation on energy and transportation accounts for a mere 0.8 percent of GDP (or 2.6 percent of total tax revenues), the report notes, which is considerably lower than the OECD average of 1.3 percent.