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HomePolicy Articles Article Summary

Compliance and Administrative Costs of Taxation in Canada

Digital Publication by Francois Vallaincourt, Jason Clemens, Milagros Palacios

In this report, Francois Vallaincourt, Jason Clemens, and Milagros Palacios prepare a calculated estimate of the “hidden” compliance and administrative costs of taxation in Canada. They define compliance cost as “the cost incurred by individuals and businesses in complying with tax laws and regulations.” They identify administrative costs as “expenses incurred by governments to manage and maintain the tax system.” According to the authors, these hidden costs represent an often-overlooked but sizeable percentage of government income and expenditure.

Vallaincourt, Clemens, and Palacios used two methods to calculate these costs: 1) a bottom-up or micro-level analysis, and 2) a top-down or macro-level analysis. Their findings indicate that for both levels of analysis the cost of compliance represents between $16.2 and $25 billion for individuals and business, while administrative costs total somewhere between $2.7 and $5.8 billion for governments. As well, their results show that the costs associated with compliance, such as the time used to complete forms, the costs of tax software, or cost of employing tax accountants, add significantly to the taxpayers’ burden. Similarly, governments spend additional money to manage and maintain a large and complex tax system.

The authors recommend some policy changes to reduce the additional costs to both taxpayers and government. Vallaincourt, Clemens, and Palacios recommend that provincial and federal sales taxes be harmonized to reduce paperwork and compliance costs for business. Moreover, the authors propose creating Tax Collection Agreements (TCA) between the federal and provincial governments for corporate income tax to reduce administration costs. Additionally, they suggest that technology at the Canada Revenue Agency be improved to encourage private-sector innovation that could reduce compliance and administrative costs while improving efficiency at CRA itself. Finally, they recommend increasing the Goods and Services Tax (GST) threshold to reduce the burden of value-added taxes (VAT) relative to the size of a business. Vallaincourt, Clemens, and Palacios posit that governments at all levels must take measures to eliminate tax policies that add complexity to the system, including special preferences, multiple tax rates, and the number of taxes collected. By eliminating these policies, they contend both compliance and administrative costs will be reduced.

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Policy Publication Details

Author(s): Francois Vallaincourt; Jason Clemens; Milagros Palacios;
Publisher: Fraser Institute [ Visit Website ]
Year Published: 2007; Publisher Type: Research Institute
Publicly Available: Yes Research Focus: National;
Registration Required: No Language: English
Payment Required: No Publication Format: Adobe PDF

Subjects / Categories:

Policy Articles / Fiscal & Budgetary / Reform
Policy Articles / Fiscal & Budgetary / Tax Policy
Policy Articles / Fiscal & Budgetary / Business Taxation
Policy Articles / Public Administration / Budgetary Process
Policy Articles / Fiscal & Budgetary
Policy Articles / Public Administration
Policy Articles / Fiscal & Budgetary / Business Taxation / 2007
Policy Articles / Fiscal & Budgetary / Reform / 2007
Policy Articles / Fiscal & Budgetary / Tax Policy / 2007
Policy Articles / Public Administration / Budgetary Process / 2007

Keywords / Tags:

tax; administration; compliance; cost; implementation; federal; provincial; harmonization; sales tax; budget;