Question

In corporate spheres, the existence of corporate taxes has led to the risk of bankruptcy. Using appropriate theories validate this assertion

Answer 1

The above line that is " the existence of corporate taxes has led to the risk of bankruptcy " is true till some extend .

The points that proof this are :

1. DEBT : The company that is unable to generate huge profits may find losses and on it they also need to pay corporate taxes that increase their debts. The taxes are not just bound to income it comprises sales, exports , imports, electricity, water, etc that sums up to a huge amount which increases th burden of the company to pay up the debts and increases risk of bankruptcy .

2. EQUITY: If a company's equity remains constantand debts increase the overall growth of the company is hindered and over it the tax implications make it difficult to still be alive in the market that eventually leads to bankruptcy.

3. FIXED TAXES OVER CERTAIN THINGS : If the sales of a company is less ,it will use less resources but as earlier they were using the same resources with good sales, they need to pay taxes even for the resources they are not using at that present time.

for example :In India, electricity connections for big factories need to pay a minimum charge for each connection though it is being used or not. There is a minmum fixed electricity bill though you use it or not.

This increase the load of bankcruptcy to company.