For maximum profitability, firms try as much as possible to reduce theirs costs when conducting business. To lower the cost of doing business, firms focus mainly on reducing the cost of factors or production or inputs and improve the efficiency of the available systems and factors of production. Labor is a primary source of production which influences the profitability of a firm. The high cost of labor does not automatically translate to efficiency but directly affects the net revenue of the business. It takes government’s effort to create favorable working environments and regulation that control and minimizes the cost of labor. Some of the countries where the lowest shares of profits go into labor taxes and contributions to employees are looked at below.
Myanmar is one of the countries in the world with the lowest costs of labor. The legal framework in the country has been improved for ease of doing business throughout the country. The minimum wage has been set at $2.80 daily to boost investment in the country. The minimum wage has given the employment sector a competitive edge over most of the countries in the region. Income taxes are paid directly by the employer from the salary paid to the employee. The low-income tax rates for both individuals and corporate has also reduced the cost of labor in the country. Currently, the firms spend only 0.2% of their total income on Labor taxes and contribution to employees in Myanmar.
Amidst the challenges of corruption and economic underdevelopment, the cost of labor in Cambodia remains significantly low. The labor market is characterized by low wages for employees leading to frequent strikes by employees. However, reforms are ongoing to streamline the labor market and increase its efficiency. To encourage investments, the government of Cambodia has capped income tax at 20% for both individuals and firms. The minimum wage has also been set at $80 per month to attract more investors. Non-salary cost of employing workers is one of the lowest compared to most countries around the world. Averagely, a firm spends 0.5% of its profits on labor tax and contribution to employees in the country.
Namibia’s labor market is one of the simplest, and one of the cheapest, in Africa. The cost of doing business in the country is low because of the low cost of labor. The minimum wage is negotiated between the employee and the employer. The social security contribution and income tax are deducted from the salary of the employee while the employer is not obligated to make an extra contribution on behalf of their employees. The law allows the employer to pay equal remuneration for equal work done. The firms only pay 1% of its profit as Labor tax and contributions to employees.
Low Wages, High Returns
Other countries where businesses spend some of the lowest shares of their profits on labor taxes and contributions to employees include Kenya, Seychelles, New Zealand, and Denmark. The low costs of labor in these countries is used as bait for investors looking to set up firms. Because of the low labor cost, firms can hire more employees, thus reducing unemployment in these countries.
Countries Where The Lowest Shares Of Profits Go Into Labor Taxes And Contributions
|Rank||Country||Labor Taxes and Contributions to Laborers Relative to Commercial Profits|
About the Author
Benjamin Elisha Sawe holds a Bachelor of Arts in Economics and Statistics and an MBA in Strategic Management. He is a frequent World Atlas contributor.
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