How Government influences corporations’ actions through tax?

[Anmol KaurParticipant]

How China has succeeded to become one of the most important country to contribute in Global Supply Chain!

 

 

The Chinese Government has been encouraging and promoting research and development for over ten years by offering tax incentives to businesses conducting that. It is a national policy and its agenda is high on Chinese Government’s 12^th Five Year Plan while tax incentives available for other activities are minimal.

 

• Following are some of the ways it does so:
• In case there is insufficient tax liability, unused credits can be carried forward for 5 years.
• 150% or 175% eligible R&D expenses can be deducted for Corporate Income Tax purposes.

 

• In China, R&D activities are highly encouraged in Telecommunication, Construction, Aerospace, Aviation and Electronic industries. However, this relief isn’t for countries registered in Hong Kong, Macau or Taiwan and holds good only for enterprises registered in China.

 

• In 2016, China’s spending was roughly 20% of total global R&D expenditure.

 

• So, we know that the cheaper goods that we claim being the reason for China’s success has R&D policy as one major reason why they are successful in providing cheaper alternatives to almost everything!

Some other ways by which governments influence actions of corporations through taxation are:

1. Tax reliefs on setting up of pension funds, on the contributions made to them and on profits earned through investment returns of assets of the fund.
2. Higher taxes on dividends paid than on Retained profits to encourage reinvestment of funds in the business which will be beneficial for the whole economy.

[Author]

Posts