Canada Could Pay the Price of USA Border Adjustment Tax
Even thought the Canadian and American economies are intertwined, changes that President Trump may be making will adversely affect Canada. In particular, businesses are keeping a keen eye on the border adjustment tax proposed by White House lawmaker, Paul Ryan. The tax package that has been proposed to US Congress will change the current 35% corporate income tax with a 20-25% “destination based cash flow tax” on imports, with US exports being exempt from the tax. A recent study by the C.D. Howe institute raised issues around the tax causing damage to the economies of both North American countries as it could negatively impact bilateral trade. The think-tank also predicted that it would shave 1.3 points off the USA’s economic growth and almost 1 point from Canada’s growth. Canadian Prime Minister Justin Trudeau is currently in Washington meeting with President Trump and Paul Ryan but as yet there is no further information as to whether the proposed border tax is going ahead. The North American Free Trade Agreement (NAFTA) is also set for negotiation, but is on hold until there has been confirmation about appointees for the American Secretary of Commerce and Trade have been confirmed.
The border adjustment tax is a concern of Canada’s gas and oil industries as 75% of oil is sold to the United States, in addition these industries are worried about President Trump’s pledge to increase energy production within the United States, which could in the long run mean that American’s buy less oil from Canada. A joint declaration by Trudeau and Trump did not clear things up, as among the talk of the bond between the two countries, there was nothing specific about trade and the border tax. Corporate Canada is still holding its breath before making large decisions about investments, and is watching what the Trump administration does that may negatively affect big business and industry in Canada. The proposed border tax is only one part of a wider plan to reform tax in America, so there could be still more changes that will have an impact on Canadian business.
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