Government Taxation Regimes - Essay Example

Task Introduction There are a number of factors that can affect and influence a business, including social, technological or financial challenges. The Political environment of a country will hamper or hinder businesses owing to the country’s political situation. The political factors are mainly external and are often beyond the ability of the businesses people both positively and depressingly. This study sets to outline the political factors that affect and hinder businesses and how their effect and influence on businesses. Political situations and Events Different countries face different political situations and events. This can be exemplified when a multinational company with diverse interests and subsidiaries in foreign countries gets to face the wrath of war or political unrests in the host countries. For instance, oil companies that had investments in Iraq were profoundly affected by the America-led invasion that started in 2003. This also led to the imposition of a trade ban on Iraq that subsequently affected unconstructively the multinational oil companies operating in Iraq (Arnove, 2002). Wars and impending political conflicts affect business in that the purchasing power of consumers is compromised due to dwindling financial base. Wars and politically instigated conflicts bring about hardships to the people affected, affect the environment and more so disrupt the social fabrics in a society (Arnove, 2002). This chain eventually prejudices the purchasing power of the affected population as well as contributing to decrease in business profits. Conflicts also affect the stock market that translates to decrease in value of businesses listed in the stock market. Government Arrangement The type of government in a country also determines success or failure of businesses. A democratic country ruled by a compelling government is capable of facilitating an excellent business environment necessary for business growth and subsequent development. Democratic governments facilitate the existence of free market systems that enable businesses to flourish and grow. In democratic countries, business people are given opportunities to air their proposals and grievances to the established government agencies and therefore, formulation and implementation of policies is based on wide consultations (Le Billon, 2003). Alternatively, in a dictatorial/autocratic country, there is a likelihood of business failure due to diminutive policies and harsh treatment from corrupt senior government officials serving in the dictatorial regimes. These regimes are also known to cause anxiety and uncertainty and this is detrimental to growth and prosperity of businesses. Changes in National and International Law Businesses that operate in more than one country like multinational companies feel the heat emanating from constant change to national as well as international legislations that touch on trade and business. The issue of minimum wage laws in most countries has brought about changes in the business world as regards who is to be employed and what the employees are to earn. This is evident in the UK where the minimum wage decrees have been introduced and implemented. Other laws touch on employees’ insurances, maximum hours an employee should work each day, and also employees’ health and safety conditions. Trade tariffs and their subsequent legislations have also been reviewed and changed once in a while, sometimes benefiting business entities and in some instances, affecting the businesses in question. The largely influenced World Trade Organization has been accused repeatedly of favoring the developed countries at the expense of the Less Developed countries. Politically speaking, the organization applies diverse legislations and rules for dissimilar countries. It has been reported that when the Less Developed countries export their products to the Developed markets, they encounter tariff restrictions that are sometimes four times higher than that faced by rich countries exporting to the Less Developed countries (Alan & Marquette, 2005). This emanates from the political and economic weaknesses of the Less Developed countries. Different rules and legislations are used in different countries as regards areas such as safety and testing standards of products and services. Business ethics and practices differ in different countries in the sense that some business entities have embraced corruption where there is rife bribing of government officials holding public positions. Processes such as setting up of businesses, customs affairs, purchase and disposal of property and the justice system are some of the areas where corruption can thrive. This translates to gross misconduct of the parties involved and is because of weak public institutions and lack of political good will in the fight to stem out corruption and other malpractices that hinder a smooth growth of businesses (Alan & Marquette, 2005). Bureaucratic Procedures This is the way different governments facilitate businesses. In some countries, it may take long to be allowed to set up a business because of lengthy procedures that at times hinder start and growth of investments in some countries (Collier, 2005). When a country is concerned about safety issues the government will set stringent rules and regulations on safety, for instance, in the transport industry thereby firms will have to incur high costs in shipping their products. Like in the case of Canada, there are many rules and regulations pertaining to publicity of alcohol and tobacco goods. Government Taxation Regimes Increased taxes may lead to businesses to diminish as the firm’s financial power and profits get a blow. As a result of high taxes they may have to abide by the high taxation regimes or close shop altogether. Businesses may also be affected because of power shifts in a country whereby new legislators in collaboration with other public office holders are forced to review the budget and increase taxes. If a government is proactive or positive towards business ventures then taxes will be fewer and less stringent rules and regulations will be applied with the main objective being to encourage investors in the establishment of businesses. Tax rates are normally discussed and set by legislators whose decisions include the status of the economy at that particular period. For example, in Europe, the politicians discussed and implemented the introduction of the euro currency that would act as a shield when conducting business between dissimilar countries, because of their interest rates, exchange rates and bank charges. Government Intervention Another Political factor is on the government’s intervention on the goods and services that it wants to be provided to its people. The government has the prerogative of making a decision on what is beneficial to its citizens in terms of infrastructural development in the provision of transport networks, health facilities, schools and even clear-cut communication channels. Conclusion In view of the above factors, it is noteworthy that any business venture should first analyze and carefully study the factors that will affect it. Be it multinationals that may need to open up operations in other countries, portfolio of companies or local companies. This will assist businesses come up with strategies on how to shield itself from the political factors, abide by the rules & regulations pertaining to employment laws and others related to the nature of their business. List of References Arnove, A., 2002, ‘Iraq under siege: The deadly impact of sanctions and war’, Cambridge: South End Press. Alan, D. & Marquette, H., 2005,’the UK, the Commonwealth and Corruption: Assessing the potential for joined-up development assistance, in Commonwealth and Comparative Politics,’ Volume no. 43, March, pp 7-15 Collier, M. 2005,’Political Corruption in the Caribbean Basin: Constructing a Theory to Combat Corruption’, New York: Routledge. Le Billon, P., 2003, Buying Peace or Fuelling War: The Role of Corruption in Armed Conflicts, Journal of International Development, vol.15, no.4, pp.413-426. PESTEL analysis of the macro-environment. Oxford University Press, 2007. Retrieved on 28th October, 2011 Read More