11 April, Introduction A policy is a typically drafted principle or regulation to guide how decisions are made and influence positive outcomes. Policies are made for different reasons and no organisation can exist without regulations either from government or within the organisation. Policies do not describe what has to be done but rather stipulate guidelines to control how to do something. The government of any country is responsible for making policies that will guide how business is done. However, the government does not solely dictate this but other organisations come in to ensure that business people do not abuse consumers.
This paper seeks to address the impact of government policy of taxation on various businesses. It seeks to explain how taxation has had its effects on various industries while seeking to get a remedy or cushion when taxation rates are increased. Definition A Taxation policy is a method that is applied by the government through the tax commissioner on ways to levy and collect taxes from individuals, corporate bodies and organisations among others (Morehead p157). This is an effort of various experts drawn from various departments that are well versed on effects of taxation both negative and positive.
Usually, it is done without consulting the public but with the common person in mind so that it will not have adverse effects on the economy. Effect on Agriculture Agriculture is the backbone of many economies in the world but has continued to feel pressure from varied directions. At times, it is not the farmer who benefits but the middlemen as they buy products way below market value from farmers and sell to retail and wholesale traders.
Usually, the government is responsible for making and presenting the budget for any fiscal year that shows how various commodities will be taxed, how various groups of companies will remit their taxes as well as considering forecasting on how to fit its spending for the coming fiscal year. Taxation has adverse effects and positive impacts on agriculture as a whole. Agricultural products are affected as well as land itself where these products are grown. When taxation policy comes in, there are those players who benefit while others stand to lose.
Before taxes are levied on the agriculture industry, it is imperative to consider the long term effects. Levying taxes causes supply level of commodities to either go down or increase depending on the impact this has. When taxes are high, supply usually comes down since suppliers will not have many people to sell their commodities to (Ranawat p77). Taxes decreased on the other hand will stand to benefit suppliers because their commodities will get to the market in abundance as they have minimal expenses. The price stability of agricultural commodities is another thing that is affected by the taxation policy.
Taxation rates gone high adversely affect farming. Farming, in certain scenarios can cause skyrocket in prices. Farming inputs e. g. fertiliser put a heavy burden on farmers and makes them to evade farming business and quit to other businesses to suit their interests. This in affects production in a country and could lead to drought encompassing a country. Before these policies are revised, it is almost too late and majority of citizens queue for food in government stores. The opposite is felt when taxes levied on the agricultural sector are checked down.
Prices stabilise and there is sufficient or even excess food in government stores. Product stability is another thing that stands to be affected if high or low taxes are levied on the agricultural sector. High taxes cause a country to have instability in terms of supply of agricultural commodities. It will make farmers shy away from bringing their products to the market since their efforts seem not to get noticed. Some farmers would even prefer to have their produce stay in their farms and rot there than have them in sold at throw away prices that will multiply their loses (Poterba p111).
However, with low taxes, farmers will appreciate to have farming as a main activity because there are returns. This will stabilize the markets and cause food commodities to go down in prices, hence, making them affordable. Land being the main factor of agriculture is directly affected by the taxation policy among other policies. It is the one that bears the main burden of taxation.
Though other factors affect its price and production, they all owe their source to taxation policy. Various governments have not been able to stabilise land prices since they do not have direct control over that. However, in the effect that taxation targets land, it becomes almost unbearable to own land and thus farming becomes secondary in such a country while it is supposed to be primary. The Taxation policy affects employment in the agricultural sector. High taxes levied on the agricultural sector makes players fail to hire employees since they feel that employees are an additional liability.
Employees will not be viewed as assets to generate more income but a burden to an employer; the ones who are employed get paid peanuts, hence, they cannot enjoy their work and they are taxed highly thus people prefer other industries. Impact of taxation policy on the banking sector The Banking sector is another industry that has a major effect on a country’s economy. It is an institution obliged with keeping money as well as giving loans to economic players. It is one industry that is close to any slight shift of an economy and can as well be used to manipulate a country’s economy.
It is the same institution that most companies use to pay their employees, hence, money is ever in circulation in banks. Banks are centrally controlled operation wise by the Central Bank, which in turn is central in determining the flow of inflation as well as value of currency. Taxation policy is one that affects banks and may lead to closure of some banks if not well calculated (Hansen p123). Some banks may go underground if taxation is too high as they may feel that no profit is being made during the operation.
The Central bank raises the interest rate at which it offers loans to commercial banks, this in turn makes these banks to raise the rates at which they offer loans to the public. This makes less currency to be in circulation in an economy since the public will shy away from taking loans with high interest rates. Banks may go underground if no revision is made to salvage and maintain them in operation.
It is considered an incentive when government gives tax holidays banks where banks may operate free from being levied tax. Motor vehicle industry Various companies operate in the motor vehicle industry. It is one industry that attracts people who purchase vehicles for public transportation as well as those who purchase for their private use. Taxation policy has seen many companies appreciate in terms of operation while others depreciate in operation. An attempt to raise taxes pushes makes operations for motor vehicle companies bearing in mind that they operate in businesses that require high capital to operate. Any policy made directed to motor vehicles industry may target spare parts that make them as well as import duty levied on imported vehicles (Steuerle p99).
This makes industry players to see as if government is targeting them to finish them while this is indeed a control on domestic players to benefit and at the same time to appreciate locally assembled vehicles. Taxation may favour either importers or exporters depending on how government implements its policies. Taxation policy effect on energy industry Energy is another sector that feels effects of taxation when policies are made.
This one industry interconnects all other industries. This is because the lighting produced by this industry is consumed by almost all other sectors of the economy. Oil is under this sector and it affects every sector. Raising oil production in a country’s economy ensures that other sectors are doing well and thus taxes will not be raised. Oil can either be imported or locally mined depending on whether a country’s oil streams are producing it. If a country has no oil within its borders, this will in turn lead to the government instituting controls that govern the way oil energy is imported.
This could be via raising taxes depending on the world’s oil market. Any raise on the prices of oil, directly affects almost all other industries. Conclusion The Taxation policy is wide. Though announced by the government, it is not a policy that should be shouldered on the government. It should be given maximum concentration to avoid messing up with the way the economy operates. Taxation policy is one that lies in the middle of operation and affects formulation of other policies. Work Cited Morehead, Joe.
Essays on Public Documents and Government Policies. London: Routledge, 1986 Print. Ranawat, Mahipat. Influence of Government Policies on Industry Development: The case of India’s Automotive Indstry. Munichen: Grin Verlag, 2009 Print. Poterba, James. Tax Policy and the economy. Cambridge: Mit Press, 2007 Print. Hansen, Bent. The Economic Theory of Fiscal Policy, Volume 3. London: Routledge, 2003 Print. Steuerle, Uegene. Contemporary U. S. Tax Policy. Washington: The urban institute, 2008Print.