Commercial Profit Taxes
Commercial profit taxes, or corporate taxes, are the taxes charged on profits earned during a specific time period. National governments typically implement these taxes although state and city level governments may also enforce them. Generally speaking, the more profit an organization makes, the more it is able to grow. Charging a tax on this minimizes the amount of money that can go back into the business. While this general concept is the same everywhere, profit taxes vary greatly around the globe. This article takes a look at some of the highest commercial profit tax rates in the world.
Consequences of High Profit Taxes
When companies are faced with extremely high profit taxes, they may take certain measures to avoid or minimize such costs. Some corporations may save their earnings in offshore accounts so as not to pay exorbitant taxes while others may look to move to countries with lower tax rates. High corporate tax rates often equate to low gross domestic product (GDP) for all socioeconomic statuses. These taxes have also been linked to low employment opportunities. Investors are discouraged from investing in these countries as the tax eats into their profit thereby lowering their return on investment. A lack of investors can hinder the economic development within a country. For existing companies, high taxes means insufficient funds to improve equipment and technology which results in reduced productivity and decreased worker wages. With these hindrances to economic growth, it’s not surprising that the top ten countries with high profit taxes are all considered developing economies.
Countries With the Highest Profit Taxes
By far the highest corporate profit tax in the world is found in Palau. At 65.8%, this country is setting itself up for economic failure. The economy here is reliant on the tourism industry and other jobs are found in the public sector. The majority of the population practices subsistence farming. The high tax has deterred external investment that could provide much needed jobs in the private sector.
Liberia comes in second place with a 35.4% business profit tax. The economy in this country depends on rubber and iron exports which decreased significantly with the global economic crisis. Its only other major source of production is in agriculture which suffered decreased production during the ebola outbreaks. With such high levels of unemployment or informal employment, the country cannot rely on individual taxes so they charge businesses high levels of taxes instead.
The third highest commercial profit tax is the 33.9% rate seen in Bhutan. Ensuring this tax is collected is the responsibility of the Department of Revenue and Customs. While attempting to increase the public financial funds, this government may be inadvertently obstructing economic development.
Other countries with high business profit taxes include Comoros, where 32.1% of profits go towards taxes, followed by Chad (31.3%), Honduras (31.1%), Mozambique (30.8%), St. Kitts and Nevis (30.5%), St. Vincent and the Grenadines (30.2%), and Malta (30.1%).
Reducing Business Profit Taxes
Evidence has shown that a reduction in businesses' profit taxes can help stimulate the economy. It contributes to job growth, wage increases, and reduced unemployment. Although it may seem counter-intuitive to these countries, lowering the business profit tax may actually be helpful. Investors may become interested in investing where they can bring home more profit. By making business ownership more affordable, those individuals with informal businesses may also be encouraged to formalize. All of these things would contribute to a broader tax base for increased public revenues.