IGCSE Business Unit 1.3.1 Impact of Taxation on Businesses
Introduction Monies paid to the government by individuals or organisations, to: • raise money to pay for public expenditure. • influence public behaviour. • redistribute income. • control the economy.
Types • Direct • Indirect • Progressive • Regressive • Specific • Ad Valorem
Direct Tax: changes and their ImpactIncome Tax • Increase = less disposable income. • Consumers cut back on income sensitive goods. E.g.?
Direct Tax: changes and their ImpactCorporation Tax • Decrease • = more money for shareholders. • = incentive to reinvest profits! • = increased entrepreneurial activity
Indirect Tax: Changes and their ImpactTypes• Value added (vat)/ Goods and services tax (GST)• Duties on specific goods such as alcohol and tobacco• Tariffs on imports
Indirect Tax: Changes and their ImpactImpactWith increase in any of the above,firm must decide, whether to: • Absorb into costs? – charge same price, reduced profit margin. • Increase price? – maintains profit margin, lower sales. • Will consumers still buy the goods if tax passed on?
Student Task • Find a recent change in taxation in a country of your choice and explain how this has affected a particular business.