The group gives Ottawa a grade of B-plus, which is an improvement over the B-minus grade last year and a C-plus in 2011.
British Columbia got the highest mark among the provinces and territories, with an A., while two provinces and two territories each got D-minus.
The low marks were handed out to Prince Edward Island, Manitoba, Northwest Territories and Yukon.
The CFIB report card evaluates progress on regulatory reform and looks at political leadership, efforts to measure the regulatory burden, long-term thinking and the overall public policy context.
The annual report card is part of the lobby group's fourth annual Red Tape Awareness week.
On Monday, another CFIB report estimated Canadian businesses spend an average of nearly $6,000 per employee each year on regulatory compliance, or red tape _ about 45 per cent more than their American counterparts.
The federation estimates that the total cost of regulation for Canadian businesses is $31 billion a year, a figure that has hardly changed since the group began tracking the cost in 2005.
Tony Clement, the minister who heads of the federal government's Treasury Board, says the Harper government began soliciting suggestions for reducing red tape in 2010 but added it takes time to put changes into place.