New Sage research reveals Canadian micro-businesses footing the tax bill of large companies

TORONTO, May 08, 2018 -- An economic report published today by Sage (FTSE:SGE) at Sage Sessions Toronto reveals that micro-businesses¹ spend twice as much time on tax-related accounting compared to medium-sized companies². They also spend the largest percentage of working time per year on tax administration compared to any other business.

This new global research highlights the stark and inefficient impact of unfair tax systems on small & medium businesses around the world, including findings to suggest that the smallest, most vulnerable Canadian companies and startups are disadvantaged.

The March 2018 report “A Taxing Problem: the impact of tax on small businesses” found that micro-businesses spend just under 20 days per year in total on tax-related accounting, amounting to 1.6 percent of their working time annually spent on tax administration. The evidence suggests that both globally and in Canada, micro-businesses are paying the highest proportion of their taxes relative to profits compared to their larger counterparts. The research also strongly indicates that small & medium businesses face a higher total tax bill as a percentage of their profits compared to larger enterprises.

Undertaken by Plum Consulting, the research analyzes the impact of direct and indirect costs of tax on small & medium businesses, based on a survey of over 3,000 companies across 11 global markets. The report reveals a strong negative correlation between the percentage of profits that a firm pays as tax and its size–both in terms of its headcount and turnover. This is on top of the additional indirect costs to tax. Tax-related accounting significantly diverts businesses’ resources from more productive business activities, with five percent of a company’s workforce being dedicated to these tasks.

Small & medium businesses make a significant contribution to the Canadian economy, making up 99.7 percent of all businesses, and employing 90 percent of the total labour force. The success of these businesses is crucial to the growth of the Canadian economy, and it is important to help drive their productivity and growth by recognizing the numerous issues they face as result of their size. Limited resources and large payments such as annual tax bills contribute to cashflow problems and operational inefficiencies, on top of the impact of unproductive hours SMEs log every year dealing with administrative burdens.

Research findings suggest that the main issue lays within the way the tax system is structured; tax is not sufficiently progressive, meaning that micro-businesses and small & medium businesses are at a disadvantage compared to large companies.

“This tax season, over 1.1 million Canadian entrepreneurs are preparing their accounting books and will be paying a higher proportion of taxes compared to their larger, and oftentimes more lucrative business counterparts,” says Paul Struthers, EVP and Managing Director of Sage, Canada.

“It’s time for the Canadian government to consider major tax reforms to help create a level playing field for small & medium businesses and free up their time and resources. We must examine the economic barriers of high-tax systems and its costly implications, while making sure government policies are in place to help nurture the growth of tomorrow’s business builders.”   

About Sage

Sage (FTSE:SGE) is the global market leader for technology that helps businesses of all sizes manage everything from money to people – whether they’re a start-up, scale-up or enterprise. We do this through Sage Business Cloud - the one and only business management solution that customers will ever need, comprising Accounting, Financials, Enterprise Management, People & Payroll and Payments & Banking.  

Our mission is to free business builders from the burden of admin, so they can spend more time doing what they love–and we do that every day for three million customers across 23 countries, through our 13,000 colleagues and a network of accountants and partners. We are committed to doing business the right way and giving back to our communities through the Sage Foundation.

Press Contact:
Betty Tian
Sage
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¹ Businesses with one to four employees

² Businesses with 100 to 499 employees