Corporate Income Tax Case Study

1. Introduction The subject of Corporate Income Tax is very interesting in todays world. A lot of major business decisions based around this particular type of taxation. As the main objective of any corporations to generate as much profit as possible, CEOs often look for the best possible location to invest in. Over the years there is on-going debate whether corporate income tax is good or bad. Well there’s definitely no exact answer to this question as such taxation very depends on economic environment of the country. In some cases it is good to keep corporate tax rate at higher marginal rate so government would have higher tax revenue which then allows them to spend more towards public goods. However if we look at the case where country

Corporate income taxes are usually applied to company’s operating earnings after Cost of Goods Sold, Selling, General and Administrative Expenses and depreciation that were deducted from the revenue. For instance, in the UK if your company is under small profits rate with under £300,000 in profits, then company pays 20% of that tax. However, if company makes above £300,000 in that case company will have to pay 21% of tax. Over the last decade the share of corporate income tax in total tax revenue for EU(27) has decreased by 1.4% as it can be seen from the Table 1 in Appendix section. This percentage is taken from weighted average of 27 EU countries. This is partly due to development of other sources of taxations, such as payroll taxes, sales taxes, individual income taxes, etc. We will look closely at the effects on macaroeconomical factors affected by corporate income taxations such as unemployment, government spending, investment and private consumption. As mentioned before, corporate tax is one of those taxes which can benefit economy by adapting to different situation because it’s there’s always a sertain point where rate is too high can actually cause the decline in economic

Figure 1 shows that the optimal level for government spending is at about 15%-25% of total GDP. At the point where government starts to exceed that percentage of spending and move beyond their core functions (such as public goods spending), this will adversly effect economic growth. The reason for that is crowding out effect which states that increase in public sector spending decreases the spending of private sector. In overall, at the point where revenue generated by government is too much, spendings are channeled in less productive sources and over the time, making it counter-productive, causing a decline in