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Taxes and Insurance
Engineering point of view
Dr. K. Shahzad Baig
Memorial University of Newfoundland (MUN) Canada
A tax is a mandatory financial charge or a levy imposed by a governmental organization
in order to fund various public expenditures.
A failure to pay, or evasion of or resistance to taxation, is punishable by law because it is
a serious crime.
Expenses for taxes and insurance play an important part in determining the economic
situation (profitability) for any industrial process
These taxes may be levied by the Federal government, state governments, or local
governments. The type of taxes are:
(1) Property taxes
(2) Excise taxes
(3) Income taxes
Property taxes
A property tax is a levy on property that the owner is required to pay.
• In addition to these, individual cities and towns may have special
property taxes for industrial concerns located within the city limits.
• Property taxes vary widely from one locality to another.
• Taxes of this type are referred to as direct tax.
• is often assessed by local or municipal governments.
Excise Taxes
Excise taxes include charges for import customs duties, transfer of stocks and bonds, and
a large number of similar items.
• Taxes of this type are often referred to as indirect.
• Excise taxes are levied by Federal and state governments
Income Taxes
• Income taxes are based on gross earnings.
• Revenue from income taxes is an important source of capital for both Federal and
Provincial (stae) governments.
• Depending on the particular state and the existing laws, state income taxes may range
from 0 to 5 percent or more of gross earnings
Federal Income Taxes
The Federal government has set up an extremely complex system for determining
income taxes for business establishments.
• New laws are added and old laws are changed each year.
Normal Tax
A so-called normal tax has been levied by the Federal government on the earnings of
corporations.
• This tax was at a rate set by the national lawmakers.
Surtax
In addition to the normal tax, corporations have had to pay a second Federal income tax
on gross earnings above a certain base limit. This additional tax is known as a surtax.
Capital-Gains Tax
A capital-gains tax is levied on profits made from the sale of capital assets, such as land,
buildings, or equipment.
The profit is known as long-term capital gain if the asset was held for more than one year
Insurance
The annual insurance cost for ordinary industrial concerns
is approximately 1 percent of the capital investment.
• A concern can obtain insurance to protect itself against loss of property
owing to any of a number of different causes.
• In case a property loss occurs and the loss is covered by insurance, payment will be
made for the damage even though the loss was caused by the owner’s negligence.
5. Workmen’s-compensation insurance.
6. Marine and transportation insurance on all property in transit.
7. Comprehensive crime coverage.
8. Employee-benefit insurance, including life, hospitalization, accident, health, personal
property, and pension plans.
Types of Insurance
1. Fire insurance
2. Public-liability insurance
3. Business-interruption insurance
4. Power-plant, machinery, and special operations hazards.
Fire insurance
Fire insurance and similar emergency coverage on buildings, equipment, and all other
owned, used, or stored property. Included in this category would be losses caused by
lightning, wind- or hailstorms, floods, automobile accidents, explosions, earthquakes, and
similar occurrences.
Public-liability insurance
Public-liability insurance, including bodily injury and property loss or damage, on all
operations such as those involving automobiles, elevators, attractive nuisances, bailee’s
charges, aviation products, or any company function carried on at a location away from
the plant premises
Business-interruption insurance
The loss of income due to a business interruption caused by a fire or other emergency may
far exceed any loss in property. Consequently, insurance against a business interruption of
this type should be given careful consideration
• Self-insurance
• Self-insurance is a risk management method in which a calculated amount of money is
set aside to compensate for the potential future loss.
• If self-insurance is approached as a serious risk management technique, money is set
aside using insurance information and the law of large numbers so that the amount set
aside (similar to an insurance premium) is enough to cover the future uncertain loss.
• Self-insurance is possible for any insurable risk, meaning a risk that is predictable
and measurable enough in the aggregate to be able to estimate the amount that needs
to be set aside to pay for future uncertain losses.
• For a risk to be insurable, it must represent a future, uncertain event over which the
insured has no control.
Following books were used in preparation of notes
 Blank, L., Tarquin. A. 2005. Engineering Economy. 6th Edition, McGraw-Hill.
 Eschenbach, T. G. 2003. Engineering Economy”, 2nd Edition, Oxford University Press
 Riggs, J. L., Bedworth, D. D., Randhawa, S. U. 1996. Engineering Economics”, 4th Edition, Tata McGraw-Hill.
 Riggs, J. L., West. T. M. 1986. Essentials of Engineering Economics”, 2nd Edition, McGraw-Hill.
 Peter, M. S., Timmerhaus, K. D. 1991. Plant Design and Economics for Chemical Engineers. 4th Edition,
McGraw-Hill.

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Taxes and Insurance Engineering point of view

  • 1. Taxes and Insurance Engineering point of view Dr. K. Shahzad Baig Memorial University of Newfoundland (MUN) Canada
  • 2. A tax is a mandatory financial charge or a levy imposed by a governmental organization in order to fund various public expenditures. A failure to pay, or evasion of or resistance to taxation, is punishable by law because it is a serious crime. Expenses for taxes and insurance play an important part in determining the economic situation (profitability) for any industrial process These taxes may be levied by the Federal government, state governments, or local governments. The type of taxes are: (1) Property taxes (2) Excise taxes (3) Income taxes
  • 3. Property taxes A property tax is a levy on property that the owner is required to pay. • In addition to these, individual cities and towns may have special property taxes for industrial concerns located within the city limits. • Property taxes vary widely from one locality to another. • Taxes of this type are referred to as direct tax. • is often assessed by local or municipal governments.
  • 4. Excise Taxes Excise taxes include charges for import customs duties, transfer of stocks and bonds, and a large number of similar items. • Taxes of this type are often referred to as indirect. • Excise taxes are levied by Federal and state governments Income Taxes • Income taxes are based on gross earnings. • Revenue from income taxes is an important source of capital for both Federal and Provincial (stae) governments. • Depending on the particular state and the existing laws, state income taxes may range from 0 to 5 percent or more of gross earnings
  • 5. Federal Income Taxes The Federal government has set up an extremely complex system for determining income taxes for business establishments. • New laws are added and old laws are changed each year. Normal Tax A so-called normal tax has been levied by the Federal government on the earnings of corporations. • This tax was at a rate set by the national lawmakers. Surtax In addition to the normal tax, corporations have had to pay a second Federal income tax on gross earnings above a certain base limit. This additional tax is known as a surtax.
  • 6. Capital-Gains Tax A capital-gains tax is levied on profits made from the sale of capital assets, such as land, buildings, or equipment. The profit is known as long-term capital gain if the asset was held for more than one year
  • 7. Insurance The annual insurance cost for ordinary industrial concerns is approximately 1 percent of the capital investment. • A concern can obtain insurance to protect itself against loss of property owing to any of a number of different causes. • In case a property loss occurs and the loss is covered by insurance, payment will be made for the damage even though the loss was caused by the owner’s negligence.
  • 8. 5. Workmen’s-compensation insurance. 6. Marine and transportation insurance on all property in transit. 7. Comprehensive crime coverage. 8. Employee-benefit insurance, including life, hospitalization, accident, health, personal property, and pension plans. Types of Insurance 1. Fire insurance 2. Public-liability insurance 3. Business-interruption insurance 4. Power-plant, machinery, and special operations hazards.
  • 9. Fire insurance Fire insurance and similar emergency coverage on buildings, equipment, and all other owned, used, or stored property. Included in this category would be losses caused by lightning, wind- or hailstorms, floods, automobile accidents, explosions, earthquakes, and similar occurrences. Public-liability insurance Public-liability insurance, including bodily injury and property loss or damage, on all operations such as those involving automobiles, elevators, attractive nuisances, bailee’s charges, aviation products, or any company function carried on at a location away from the plant premises Business-interruption insurance The loss of income due to a business interruption caused by a fire or other emergency may far exceed any loss in property. Consequently, insurance against a business interruption of this type should be given careful consideration
  • 10. • Self-insurance • Self-insurance is a risk management method in which a calculated amount of money is set aside to compensate for the potential future loss. • If self-insurance is approached as a serious risk management technique, money is set aside using insurance information and the law of large numbers so that the amount set aside (similar to an insurance premium) is enough to cover the future uncertain loss. • Self-insurance is possible for any insurable risk, meaning a risk that is predictable and measurable enough in the aggregate to be able to estimate the amount that needs to be set aside to pay for future uncertain losses. • For a risk to be insurable, it must represent a future, uncertain event over which the insured has no control.
  • 11. Following books were used in preparation of notes  Blank, L., Tarquin. A. 2005. Engineering Economy. 6th Edition, McGraw-Hill.  Eschenbach, T. G. 2003. Engineering Economy”, 2nd Edition, Oxford University Press  Riggs, J. L., Bedworth, D. D., Randhawa, S. U. 1996. Engineering Economics”, 4th Edition, Tata McGraw-Hill.  Riggs, J. L., West. T. M. 1986. Essentials of Engineering Economics”, 2nd Edition, McGraw-Hill.  Peter, M. S., Timmerhaus, K. D. 1991. Plant Design and Economics for Chemical Engineers. 4th Edition, McGraw-Hill.