New border-adjustment tax has its good and bad sides.

By Yetun April 4, 2017 Business News No Comments

WHAT IS A BORDER-ADJUSTMENT TAX & WHO CAME UP WITH THE IDEA?

The border-adjustment tax concept was created by the Republican Party last year in its policy paper as a means to fulfill its vision of a “confident America”. The particular type of B.A.T in question is the D.B.C.F.T—destination-based cash flow.

With the Republicans now being the ruling party in the United States and Donald Trump at the helm, this tax is sure to come to past.

PROS

Exports out of the country will now be 12% cheaper—in a way—due to the fact that every $33 of earnings obtained from $100 of exports, there will be a 12% tax cost.

(These numbers were obtained using the 33% gross margin of the S&P).

CONS

Canadian finance minister Bill Morneau says that it will put both his country and America at risk of losing money by way of devaluing the American dollar by 15%, according George Saravelos, strategist at the Deustche Bank. More so, America than Canada; and will affect families on either side of the border.

Some more knowledge from Mr. Saravelos: Since U.S. imports will go up by an additional 20% simply ’cause corporates will have pay 20% corporate tax on their value.

Import costs will inevitably rise.

WTO rules will be broken, inadvertently.

HOW WILL IT AFFECT THE RELATIONSHIP BETWEEN BOTH COUNTRIES?

It will for sure out a strain on every aspect of their relationship which will naturally trickle down to its citizens who that begin to experience difficulty in day to day dealings with each other.

WHAT IS JUSTIN TRUDEAU TAKE ON IT?

It should not come as a surprise that Prime Minister Trudeau is inherently against this.

“anything that creates impediments at the border, extra tariffs, new taxes is something we’re concerned with…you’re going to be hurting not just the Canadian economy but the American economy as well”.

He concurs with his finance minister, Morneau.