Different taxes that affect businesses

Corporate Tax Income Tax Capital Gains Tax Value added tax/Sales tax Excise duties Import duties etc,

Taxation costs affect the organizational structure of the firms Higher tax rates

Change the risk taking behavior of firms Force businesses review where they decide to operate

Corporations

Taxed at Corporate Level Corporate tax on Retained Earnings Taxes on dividends paid out to shareholders Taxed at the net income Taxes on individual profits or losses Net income divided among partners is taxed on each partners return Taxed on the net income Taxed at owner level

Partnership

Sole Proprietorship

Tax structure affects the investment pattern i.e., the debt-equity proportion of the firm
Tax deductibility of interest makes debt

financing valuable Cost of capital decreases as debt proportion increases

So debt financing leads to less taxable income

 Taxes

influence corporations decisions to

Finance in one way rather than another

Spend for one purpose rather than another
High

corporate tax rates

Cause greater reliance on debt as opposed to equity finance adversely effect corporate investments and entrepreneurship