International Journal of Accounting Research

The Balance of Corporate Taxation: Benefits and Limitations

Tang Yang^* Department of Economics, Kwansei University, Hyogo, Japan
^*Correspondence: Tang Yang, Department of Economics, Kwansei University, Hyogo, Japan, Email:

Received: 02-Oct-2023, Manuscript No. IJAR-23-23683; Editor assigned: 04-Oct-2023, Pre QC No. IJAR-23-23683 (PQ); Reviewed: 20-Oct-2023, QC No. .JAR-23-23683; Revised: 27-Oct-2023, Manuscript No. IJAR-23-23683 (R); Published: 03-Nov-2023, DOI: 10.35248/2472-114X. 23.11.352

Description

Corporation taxes have been a subject of significant debate and scrutiny among policymakers, economists, and the general public. These taxes are imposed on the profits of corporations, and they play a significant role in generating government revenue, funding public services, and influencing economic behavior. In this study, they will explore the benefits and limitations of corporation taxes, shedding light on the diverse perspectives surrounding this fiscal policy tool.

Benefits of corporation taxes

Revenue generation: The most apparent benefit of corporation taxes is the revenue they generate for the government. Corporations, especially large multinational ones, can contribute substantial amounts to the public treasury. This revenue can be used to fund essential services such as education, healthcare, infrastructure, and national defense.

Wealth redistribution: Corporation taxes can contribute to wealth redistribution by imposing a higher tax rate on corporate profits. This can help reduce income inequality by ensuring that a portion of corporate earnings goes towards benefiting society as a whole.

Economic stability: Taxing corporations provides a stable source of government revenue that is less susceptible to economic fluctuations. This stability is especially valuable during economic downturns when other revenue sources, like income and consumption taxes, may decrease due to reduced economic activity.

Encouraging responsible corporate behavior: Corporation taxes can be used to incentivize responsible corporate behavior. For example, tax deductions or credits can be offered for environmentally friendly practices, research and development, or job creation, encouraging corporations to invest in these areas.

Global taxation: Corporation taxes help prevent tax evasion by multinational corporations through mechanisms like transfer pricing, which involves shifting profits to low-tax jurisdictions. International cooperation on corporation taxes can ensure a fair distribution of the tax burden.

Limitations of corporation taxes

Economic efficiency: One of the primary criticisms of corporation taxes is their potential to hinder economic efficiency. High tax rates can reduce a corporation's incentive to invest, expand, or innovate. This may lead to lower economic growth and job creation.

Double taxation: In some cases, corporate profits are subject to double taxation. This occurs when corporations pay taxes on their earnings, and shareholders pay taxes on dividends received from those earnings. Double taxation can discourage investment in corporations and hinder dividend distribution.

Complexity and compliance costs: Corporation tax codes are often complex and require significant resources to comply. This can be a burden for both corporations and the government. Compliance costs include the time and effort spent on tax planning and compliance, which might be more effectively used elsewhere.

Tax avoidance and evasion: Some corporations engage in tax avoidance and evasion strategies to minimize their tax liability. This can include moving profits to tax havens, exploiting tax loopholes, or using aggressive tax planning. These practices can undermine the intended tax revenue.

Global competition: Corporations have the flexibility to choose where to establish their headquarters or operations based on tax considerations. High corporate tax rates in one country can lead to a loss of businesses to lower-tax jurisdictions, resulting in what is known as a "race to the bottom" in corporate taxation.

Administrative challenges: Tax authorities often face administrative challenges in enforcing corporation taxes, especially when dealing with complex corporate structures, cross- border transactions, and digital economy businesses. These challenges can lead to disputes and difficulties in collecting taxes.

In conclusion, corporation taxes are a critical component of a country's fiscal policy, with both benefits and limitations. They serve as a vital source of government revenue, contribute to wealth redistribution, and promote economic stability. However, their impact on economic efficiency, potential for double taxation, complexity, and challenges related to tax avoidance and evasion should not be overlooked. Striking the right balance in corporate tax policies requires thoughtful consideration and adjustments to meet the unique economic and social goals of each country. The ongoing debate surrounding corporation taxes underscores the need for a nuanced and informed approach to taxation in the modern global economy.