Taxes

 

Federal

Provincial / territorial

Municipal

Assessing the effectiveness of tax interventions

 

Federal

Border tax adjustments (BTAs), including border carbon taxes (BCAs) (adapted from Evola, 2018)

BTAs and BCAs are instruments  that potentially reduce leakage.  They are designed to reduce the chances of a domestic tax intervention being compromised by imports and capital flight.  A domestic tax can make domestic products more expensive than imported goods, and thus encourage the import of foreign goods and the movement of firms to untaxed jurisdictions.  The BTA applies an equivalent  charge on imports or subsidizes domestic exports to eliminate the domestic charge to make the price competitive internationally, or does both.

BTAs are typically assessed within the open border, free trade environment to which Canada is currently a party.  As a result, there is debate about whether such taxes violate trade agreements.  The predominant view is that a BCA would have to be justifiable under Article XX of the GATT (see Goal 10) and designed so as not to invoke arbitrary restrictions on trade (Holmes et al., 2011).

However, in the context of this site, a more justifiable argument is GATT Article III, the like provision (see Goal 10).  This provision, the root of trade agreements, states that products must be treated equivalently regardless of source.  So, if a government decides to impose an environmental performance tax on domestic producers, it makes sense that it would impose an equivalent tax on imports to create a level playing field as per Article III. This is explicitly named as acceptable under Article II:1(b).  If a carbon tax regime / price existed in the country of import, then that methodology could be used to set the border tax, if any indeed was required. If a domestic charge was put on prior to export, and it was equivalent to the Canadian charge, then no border adjustment would be required.   If it did not, then a tax equivalent to the domestic charge could be applied.  The tax would be paid by the importing firm.  Alternately, imports would purchase allowances, as was proposed in a US bill (Bingaman/Spencer) that did not proceed. However, there is  some question about whether an allowance purchase is a tax and that would affect what articles under the GATT would be brought to bear on a trade complaint.  Canadian foods exported would only receive an export rebate if going to a country that did not have a carbon tax / price regime in place.

 

Goods and Services Tax (and associated Harmonized Sales Tax in some provinces)

A value added tax, first imposed in Canada in 1991, it is legislated under the Excise Tax Act. It includes most goods and services, but basic groceries are exempt or zero rated.  Snack foods and many beverages, however, are taxed.   Other exemptions include farm livestock and fish for human consumption and  farm equipment.

Import tariffs

Under the Customs Tariff Act,  and administered by the Canadian Border Service Agency, duties can be applied to imported goods.  In Canada, many foods are subject to tariffs at different levels depending on such matters as supply management, free trade agreements, and the country of origin.

Income tax (and related programs and deductions)
Accelerated cost allowances
Income splitting
Food-specific taxes
Taxes on high energy density or low quality foods and beverages
Taxes on foods with poor environmental performance
Input taxes
Taxes on synthetic chemicals
Carbon taxes