Tax credits for high-tech sectors fuelling economic growth

La Presse published a column by Francis Vailles in which the author equates tax credits with profit shifting to tax havens. Reading that piece, we knew we had to weigh in on the issue.

Comparing the two strategies and looking for similarities between them is a risky thing to do. Tax havens involve money transfers and are used to shield income from taxation. In addition to eroding Québec’s tax base, they bring zero benefits to the region in terms of economic growth. Unlike tax havens, tax credits are investments in companies that create jobs in high-tech sectors that have a strong multiplier effect on the region’s economy. They should be seen as investments rather than expenses.

Greater Montréal has become a global video game development hub thanks to tax credits. The video game industry didn’t even exist 20 years ago. Today, it accounts for close to 11,000 well­paid jobs. We should not only be happy that Montréal has acquired expertise in this field, but also acknowledge the fact that this growing industry has significantly raised the city’s international profile.

Assistance in the form of tax credits to high-tech companies is currently the norm in North America. In recent years, more and more jurisdictions have become increasingly aggressive in attracting high-value-added industries and operations. As a result, the number of incentives (e.g., subsidies and tax credits) provided by jurisdictions has skyrocketed. In the United States alone, it has doubled over the past decade.

Despite the sharp increase in incentives in North America, the Québec government has adopted a sensible approach. Tax credits in Québec are sector-specific and have greatly contributed to the emergence of a knowledge economy over the past few years, especially in Greater Montréal.

In 2014, the Québec government created the Taxation Review Committee to review tax credits offered to companies, among other issues. Armed with studies and analyses, a number of organizations—including Montréal International—then argued before the Committee that, overall, Québec’s tax credits are cost-effective for the government. Take the development of e­business and the production of multimedia titles, for example. Tax credits for these high­value-added, high-growth industries have helped position Québec as a global leader in the field and generated tax revenues that exceed the cost of the incentives. In short, in today’s fiercely competitive North American market, Québec’s sector-specific tax credits serve as a powerful revenue-generating tool, while playing a key role in making Greater Montréal more competitive and attractive to businesses.

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