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British Columbia Finance Minister Kevin Falcon, left, tables the provincial budget as Premier Christy Clark listens at the B.C. Legislature in Victoria, B.C., on Tuesday February 21, 2012.

Darryl Dyck/ The Canadian Press/Darryl Dyck/ The Canadian Press

Small business owners clearly aren't pleased that the provincial government has clawed back a promised tax cut.

In defending the move, Finance Minister Kevin Falcon said B.C.'s small business income tax rate of 2.5 per cent is "already among the lowest in Canada."

B.C. actually ranks fourth in that category among the provinces.

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Manitoba leads the way, after eliminating its small business income tax in 2010. Prince Edward Island ranks second with a rate of 1 per cent, while Saskatchewan is third at 2 per cent. (All rates as of Feb. 1.)

Alberta ranks fifth at 3 per cent, while Ontario is tied for eighth with New Brunswick at 4.5 per cent. Quebec has the highest small business income tax rate at 8 per cent.

B.C.'s small business rate was scheduled to drop to zero on April 1. But when he unveiled the budget this week, Mr. Falcon announced there would be no reduction "given the uncertain fiscal environment." He said government would revisit the issue once its fiscal situation improved.

Maintaining B.C.'s 2.5-per-cent rate is part of the provincial government's tax policy shift that is projected to generate $666-million in additional revenue. The province also plans to increase the general corporate income tax rate to 11 per cent from 10 per cent, effective in April, 2014. The tobacco tax rate is slated to increase in April, 2013, to offset the reduction in tax due to the elimination of the HST.

B.C. will return to the PST in April, 2013.

Economist Jock Finlayson of the Business Council of B.C. said there was never a compelling reason to drop the small business tax rate to zero.

"Zero is not an optimal tax rate if you're trying to raise revenue from business," he said.

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B.C.'s current corporate income tax rate of 10 per cent is tied for the lowest among the provinces, with Alberta and New Brunswick. Ontario is fourth at 11.5 per cent, while Quebec is fifth at 11.9 per cent. Nova Scotia and Prince Edward Island are tied for the highest rate – 16 per cent.

B.C.'s manufacturing income tax rate of 10 per cent is tied for second-lowest, with Ontario, Alberta, Saskatchewan and New Brunswick. Newfoundland has the lowest manufacturing rate at 5 per cent. Nova Scotia and Prince Edward Island, again, have the highest rate at 16 per cent.

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