Tax Administration in a Decentralized Tax System A Canadian Perspective

Transcription

1 A Canadian Perspective Philippe Nault Legislative Policy and Regulatory Affairs Branch Canada Revenue Agency November 29, 2006

2 Taxation Powers The Government of Canada may raise money by any mode or system of taxation Provincial governments may raise money by means of direct taxation within the province for provincial purposes Provincial governments may also raise money by any mode or system of taxation in respect of: non-renewable natural resources and forestry resources in the province and resulting primary production sites and facilities in the province for the generation of electrical energy and resulting production 2

3 Tax Policy Federal Finance Department is responsible for federal tax policy Provincial finance departments (or equivalents) are responsible for tax policy for their respective provinces Both levels of government federal and provincial have autonomy to set their own tax policies 3

4 Canada Revenue Agency In December 2003, the former Canada Customs and Revenue Agency was divided into two organizations: Canada Revenue Agency Administration of tax programs Delivery of economic and social benefits Canada Border Services Agency Customs functions Immigration functions Food inspection functions 4

5 CRA Mission To administer tax, benefits and related programs and to ensure compliance on behalf of governments across Canada, thereby contributing to the ongoing economic and social well-being of Canadians. CRA Vision To be the preferred service provider to deliver tax, benefits and related programs for governments across Canada. 5

6 Canada Revenue Agency Responsibility for the administration of federal taxing statutes imposed by federal legislation Federal legislation permits CRA to enter into agreements with Federal departments and agencies Provincial and territorial governments, and First Nations for the purpose of administering taxes or other programs (such as benefit programs) CRA has entered into over 140 program delivery and information exchange agreements 6

7 Canada Revenue Agency Federal legislation requires the CRA to provide information and elements of accountability to clients Nomination of Directors to CRA s Board of Management Service management framework agreements Service level agreements Annual reports to federal, provincial and territorial governments Client participation on various committees and working groups Other official as well as informal consultations 7

8 Federal Taxes Administered CRA administers/collects the following for the Government of Canada: Personal income tax Corporate income tax Large corporations tax Excise duties and excise taxes Goods and services tax (other than in the province of Quebec) Employment insurance premiums Canada Pension Plan contributions Air travellers security charge Softwood lumber export charge (assuming Royal Assent) 8

9 Federal Revenues Administered Number of Filers Revenue ($ billion) Personal income tax 25 million $103.8 Corporate income tax 1.7 million $31.7 GST/HST (excl. Quebec) 2.5 million $11 Employment ins. premiums $16.9 Canada Pension Plan $30.1 premiums (excludes QPP) Other revenues $17 9

10 Provincial, Territorial and First Nations Taxes Administered While Canada is one of the most decentralized countries in the world from an expenditure and tax perspective there nonetheless exists significant centralized tax administration CRA administers/collects: Personal income tax for 9 of 10 provinces and 3 territories (Quebec excepted) Corporate income tax for 7 of 10 provinces and 3 territories (Quebec, Alberta and Ontario excepted) Ontario has recently agreed to CRA administration Corporate capital tax for 2 provinces 10

11 Provincial, Territorial and First Nations Taxes Administered Harmonized sales tax for 3 provinces Refund set-off programs for 6 provinces and 1 territory Over 100 provincial income tax credits and tax rebate programs Numerous benefit, tax, and income-verification related programs for various provinces First Nation Taxes on listed products for 11 First Nations First Nation Goods and Services Tax for 11 First Nations First Nation personal income tax for 9 First Nations Nova Scotia Workers Compensation Board premiums 11

12 Provincial, Territorial and First Nations Revenues Collected almost $52 billion on behalf of provinces, territories and First Nations Revenue ($ billion Cdn) Personal Income Tax $43.6 Corporate Income Tax $3.9 CRA collected 84% of all income taxes in Canada personal and corporate 12

13 Benefit Programs Administered the following federal benefit programs Canada child tax benefit Children s special allowance Universal Child Care Benefit GST/HST credit Distributed payments worth close to $14.7 billion Canada child tax benefit - $9.2 billion to 3.25 million recipients GST/HST credit - $3.4 billion to 9.5 million recipients 13

14 Benefit Programs Administered 17 provincial/territorial benefit programs, including British Columbia family bonus Saskatchewan sales tax credit New Brunswick child tax benefit Newfoundland and Labrador seniors benefit Distributed payments equal to $264 million to approximately 770,000 recipients 14

15 Other Federal and Provincial/Territorial Programs Delivered several one-time income-tested payment programs, including: Federal Energy Cost Benefit program $357.7 million to over 1.4 million recipients Ontario Taxpayer Dividend Over $1 billion to over 5 million recipients Alberta Energy Tax Rebate $690 million to over 2 million recipients Alberta 2005 Resource Rebate $1.26 billion to 2.3 million recipients British Columbia Energy Rebate $76.5 million to million recipients 15

16 Canada Border Services Agency CBSA s mandate includes collecting applicable federal taxes/duties at the time of importation of goods Collected over $3 billion in federal import duties Collected over $25 billion in federal GST Federal legislation permits CBSA to enter into agreements with provinces/territories with respect to the collection of provincial sales tax, tobacco tax and alcohol fees/markups Collected over $52 million in provincial sales tax 16

17 Canadian Legal Framework Harmonized Sales Tax Harmonized Sales Tax (HST) in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador HST replaced the federal GST and provincial retail sales taxes in participating provinces in 1997 HST is imposed by federal law and is comprised of a federal component and a provincial component Legislation by participating provinces authorizing participation Participating provinces receive their share of revenues from the federal government 17

18 Province of Quebec CRA does not administer the GST/HST in the province of Quebec Quebec harmonized its retail sales tax regime with the GST in July 1992 with the introduction of the Quebec sales tax (QST) Since 1992, Revenu Québec has administered the GST in the province of Quebec on behalf of the federal government in conjunction with the administration of its QST 18

19 Additional Potential CRA Administration Provincial/territorial revenue departments (or their equivalents) will administer provincial/territorial taxes where their government has not entered into a tax collection agreement with the CRA Federal government is promoting harmonization of the 5 remaining provincial retail sales taxes with the GST/HST with CRA administration Federal government is examining other potential tax harmonization and administrative streamlining opportunities with the provinces Collection of provincial tobacco and motive fuel taxes Federal government and CRA is considering other business opportunities where these are aligned with CRA s core business capacity Collection of municipal taxes 19

20 Advantages of Decentralized Tax Administration May enhance level of fiscal autonomy as local governments control the design of the tax structure (type of tax, tax rates, tax base, etc) and the manner in which the tax will be administered. Tax administrator has interest in good revenue administration incentive to audit, assess, collect in effective and timely manner Conversely, taxing government is assured that due diligence will be given to the collection and enforcement of its taxes Potentially more flexibility provided to tax administrator to design appropriate organizational structure responding to local/regional needs 20

21 Advantages of Decentralized Tax Administration Flexibility and familiarity with local conditions permit tax administrator to focus resources/activities on regional/local compliance issues Tax administrator more likely to represent local government in disputes about the distribution of tax revenues in cases where taxpayer might be taxable in multiple jurisdictions Potential for greater accountability easier for taxpayers to see which government is levying what taxes and to hold the appropriate government accountable 21

22 Disadvantages of Decentralized Tax Administration Increased government administration costs due to degree of duplication and lack of economies of scale/scope (less efficiency) Increased compliance costs for business due to the requirement to interact with more than one tax administration Requirement to file more numerous returns, elections, etc Account for different taxes, tax bases, tax rates Different administrative rules, timeframes and procedures Particularly true for small businesses or businesses that operate in numerous jurisdictions who bear disproportionately higher compliance costs to deal with 2 or more sales tax systems No uniform compliance approach or coordinated activities 22

23 Disadvantages of Decentralized Tax Administration No single structure, procedures and processes for dealing with taxpayers throughout the country Decentralized tax administrations may not be able to afford more qualified personnel, pay higher salaries, or allow personnel to specialize to the degree feasible with larger administrations Decentralized tax administrations may not be able to administer more complex tax structures such as VATs and social security contributions, due to cost structures, level of knowledge/skill required, etc Decentralized tax administrations may not have budgets that permit more sophisticated information technology 23

24 Disadvantages of Decentralized Tax Administration More onerous information exchange processes and less standardization of available information National tax administrations may be better able to deal with national/global taxpayers with taxable activities that cross regional or local jurisdiction boundaries within the nation Potential for taxpayers to receive inconsistent treatment More sensitive to political interference/corruption Less potential for detection of non-compliance across regions More onerous set-off mechanisms 24