Wednesday, January 22, 2014

Removal of coporate tax is not feasible

Some have advocated removing of corporate tax as a means of encouraging businesses to pay more to their employees. However, I have to disagree on this aspect because of one very fundamental reason. There is always a "what if".

Let me explain. As a business owner, you will always try to predict your cashflow 2-3 years ahead, and plan manpower and operating costs based on this assumption. Buffers will always be added in although business owners will usually never reject any opportunities that come knocking.

So what happens if the corporate tax is removed? It will be added in to the buffers. The fact is that unless there is a law that states the minimum salary to be given to any worker, most business owners will try to keep operating costs to the minimum because their line of business may have too many "what ifs". The savings will never flow down to the employees in that manner.

I am not implying that all businesses are like that but just look at the news to see what's happening out there. Outsourcing critical customer-facing operations to countries that may be halfway round the world. Why is it done? Because of operational costs.

Nobody likes to be taxed but I think we must look at it from a more holistic point of view.  Who is paying for the infrastructure that supports businesses? Who is paying to maintain all the airports, seaports and borders that govern the country's imports and exports? Who is in-charge of signing all the agreements that allow your business to expand overseas?

Definitely not the elves. Money must come from somewhere.

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