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In: Finance

Why does not an increase in company pre-tax profits convert into an increase in giving as...

  1. Why does not an increase in company pre-tax profits convert into an increase in giving as a percentage of corporate pre-tax profits?

Solutions

Expert Solution

I see that your question is not clear in language but based on your query, possible reason could be for not increasing in pre tax profit as under:-

1. Possible situation where tax is payable on sales not on profit: - If companies were taxed on their sales, they would have to pay tax even when making small profits or losses.

2. Wrong or major Investment - Companies can make losses or low profits as a consequence of major investments. A sales tax could therefore act as a disincentive to making those investments. In addition, it could be a major burden on new companies in their early years. It might therefore discourage entrepreneurialism across the board.

3. Threat to Small companies:- A sales tax would have to be introduced on a global scale. You couldn’t have companies paying taxes on profits in some jurisdictions but sales in others. But as a result, it wouldn’t just be multinationals like Google that had to deal with multiple national tax authorities. Smaller companies in the export business would have to as well, which would impose an extra business burden. Such companies might be discouraged from seeking out new export markets.

4. No relief on inta group settlement of losses due to tax on sales:- At present, a loss by a subsidiary in a group of companies can be offset against a profit made by another subsidiary in the same group. A move to sales-based taxation would not allow this, since all companies that made sales would be taxed on them. Instead the group’s tax burden would rise.


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