This document discusses the impact of taxation on businesses. It defines different types of taxes such as direct taxes like income tax and corporation tax, and indirect taxes like value added tax and duties. An increase in income tax can lead to consumers cutting back on discretionary spending. A decrease in corporation tax provides incentives for businesses to reinvest profits and increase entrepreneurial activity. For indirect taxes, businesses must decide whether to absorb the increased costs or pass them on to consumers through higher prices, which could lower sales.

1. IGCSE Business Unit 1.3.1
Impact of Taxation on Businesses

2. 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.

3. Types
• Direct
• Indirect
• Progressive
• Regressive
• Specific
• Ad Valorem

4. Direct Tax: changes and their Impact
Income Tax
• Increase = less disposable
income.
• Consumers cut back on
income sensitive goods.
E.g.?

5. Direct Tax: changes and their Impact
Corporation Tax
• Decrease
• = more money for shareholders.
• = incentive to reinvest profits!
• = increased entrepreneurial
activity

6. Indirect Tax: Changes and their Impact
Types
• Value added (vat)/ Goods and
services tax (GST)
• Duties on specific goods such as
alcohol and tobacco
• Tariffs on imports

7. Indirect Tax: Changes and their Impact
Impact
With 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?

8. Student Task
• Find a recent change in taxation
in a country of your choice and
explain how this has affected a
particular business.