Baldur's Gate 1 and 2 as well as Icewind Dale Enhanched Editions are here on GoG for $26.79 CAD. Yet Steam has thesse games in their store for 21.99 CAD, a $4.80 CAD difference. I have all my old school or indie games through GoG, and I want to purchase these through GoG as well, but not for almost 5 dollars more.

It seems like more and more I'm finding games that I have on my wishlist on GoG are more expensive than their Steam version, and there's no incentive to buy on GoG because of it, aside from DRM of course. So my question is, why doesn't GoG update their pricing to match that of Steam to be more competitive?

Because a lot of people here find regional pricing to be unfair and take up pitchforks whenever a game uses regional pricing.

Gog's prices are in USD so they fluctuate with the USD/CAD exchange rate. On steam i think the price is set once to X CAD and it never changes. Both approaches have advantages and disadvantages.

Almost all the games that are 26.79 have been that way for months at least though, so it really doesn't fluctuate with the exchange rate, which changes every day. I just wonder how much business GoG loses from people getting games cheaper on steam.

It does fluctuate, but they change the equivalents only when the exchange rate shifts a bit, not day by day. Last update was a bit over 2 months ago.

...and let's not forget there is always such thing as fair price package.
In other words: your price might not change for a long time, but the amount of $ returned by FPP to your wallet will.

Well this only applies if you are paying more than the US price, so if you are paying that or less you won't get anything and steam can still be cheaper or more expensive.

GOG explained their fair local pricing policy already.