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Canada's relatively low corporate taxes have helped to make this country one of the best places in the world for companies to set up shop.

Canada ranks second among 10 key countries as a cost-effective place to do business, and relatively low taxes are one of the main factors, consultants KPMG said in a report released yesterday.

Mexico, the only developing country included in the study because of its tight links with the two larger North American economies, came first in the overall competitiveness ranking, mainly thanks to low labour and facilities costs.

But Canada beat all of its peers in the Group of Seven industrialized countries, and showed a cost advantage over the United States, which finished eighth on the list, ahead of Germany and Japan.

While the ranking took into account a wide range of factors considered by companies when choosing a business location, KPMG said one key reason for Canada's high standing is that federal and provincial governments have been cutting taxes and reforming tax laws in recent years. Indeed, Canada now has lower business taxes than any other G7 country, the consultants said.

"It's really over the last 10 years Canada's tax position has changed quite significantly from being a high-tax jurisdiction to now actually leading the G7," said Glenn Mair, director of MMK Consulting, which assisted in preparing the KPMG study.

Since 2000, the overall corporate income tax rate in Canada has fallen to about 31 per cent from about 43 per cent, said Jack Mintz, chair of the University of Calgary's School of Public Policy. It will fall further, to about 26 per cent, over the next few years.

When it comes to attracting business, "there is no question that the tax system helps a lot," Mr. Mintz said.

Fifteen years ago, "we were viewed as a high-debt, high-tax, high-deficit [country]" he said. "Today we look like a much better country, and certainly we had a much better balance sheet going into the recession."

Last weekend, Liberal Leader Michael Ignatieff said he thinks Ottawa should delay planned reductions in corporate taxes, to keep about $6-billion in federal coffers. The federal rate, now at 18 per cent, is set to decline to 15 per cent by 2012.

But Mr. Mintz said lowering the rate will not actually cut into revenue, because more companies will establish businesses in Canada if the rate declines, boosting the tax base.


Low costs, high ranking

How countries rate on business costs

Rank Country Cost index*
1 Mexico 81.8
2 Canada 95.0
3 Netherlands 96.5
4 Australia 97.8
5 Britain 98.2
6 France 98.3
7 Italy 100.0
8 United States 100.0
9 Germany 102.6
10 Japan 107.6

*Relative to the U.S. The study considered labour, taxes, real estate and utilities, as well as non-cost factors such as education, climate and crime rates. Source: KPMG