Canada moves up by one spot in the 2025 International Tax Competitiveness Index
- Canada moved up from 14th to 13th out of 38 OECD countries.
Montreal, October 20, 2025 – The recent decisions to scrap the digital services tax and to roll back the proposed capital gains tax hike have pushed Canada up by one place in terms of tax competitiveness, notes an MEI researcher in reaction to the release of the Tax Foundation’s International Tax Competitiveness Index.
“The federal government tried to push tax policies that would have punished and dissuaded entrepreneurship,” says Emmanuelle B. Faubert, economist at the MEI. “Reversing course is a clear admission that such taxes would have been disastrous for investment, and the Tax Foundation’s Index corroborates that fact.”
The Tax Foundation’s annual International Tax Competitiveness Index measures the extent to which a country’s tax code is competitive and neutral in relation to other OECD nations.
Canada’s overall rank increased by one spot this year and now stands at 13th out of 38 OECD countries.
The Index notes that the climb from 14th to 13th place was driven by Ottawa’s walking back of its promises to institute a digital services tax and to increase the capital gains inclusion rate.
The digital services tax – a planned three per cent levy on large technology companies generating more than $750 million in annual global revenue – was rolled back in June.
Last year, the federal government announced its intention to increase the capital gains tax inclusion rate from 50 per cent to 66.7 per cent. This measure was never implemented through legislation, and the federal government announced last March that it wouldn’t go forward after all.
“Scrapping the tax hike didn’t make us more competitive, it merely prevented us from being even less competitive,” notes Ms. Faubert. “The current tax rate remains a drag on investment.”
The top marginal capital gains tax rate in Canada stands at 26.8 per cent – more than six percentage points above the OECD average. According to the Index, Canada ranks 34th out of 38 OECD countries for its expensive capital gains taxation system. Notably, this is behind the United Kingdom (31st), the United States (26th), and Germany (24th).
The report notes that capital gains taxes are “a form of double taxation” that harms the economy by changing the business incentives to fund new projects.
Canadians also face a heavy tax burden compared to other OECD countries, with Canada ranking 22nd for corporate taxes and 27th for individual taxes.
The corporate tax rate in Canada stands at 26.2 per cent – two percentage points above the OECD average. For corporate taxes specifically, Canada ranks near the bottom of the Index, while reputedly high-tax Scandinavian countries such as Sweden, Finland, and Norway all rank significantly better at 6th, 7th, and 13th, respectively.
“If Ottawa is determined to turn Canada’s economy around, it must start by no longer discouraging entrepreneurship and investment,” said Ms. Faubert. “Since standards of living are where they were a decade ago, Canada should be focused on making our tax regime more competitive to attract investment.”
You can read the Tax Foundation’s 2025 International Tax Competitiveness Index here: https://taxfoundation.org/research/all/global/2025-international-tax-competitiveness-index/
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