IMF warns Canadian government over creating 'small business trap' via tax relief
The International Monetary Fund (IMF) has said in a report on the Canadian economy that the government could be offering too much in the way of tax relief to smaller businesses.
Although generous, the IMF warns that basing tax relief on a company's size may not be the best option, stating that often the most innovative and productive companies are new, not necessarily small.
The report also stated that such a system may put SMEs off growing into larger businesses, creating a 'small business trap'. It points out that more than six in ten small companies are more than six years old.
The IMF summarises: "The overall effective tax rate should not penalize firms from scaling up. In particular, preferential tax treatment of small firms should be reconsidered. Well-designed tax relief targeted to new firms can promote entrepreneurship and innovation."