What if a government, in its drive to discourage the production of cigarettes in the country, decides to levy 50% tax on corporate profits of companies in this industry? Compare this to the normal tax rate (30%) that is levied on all other companies. What role does it play and who gets to benefit from it all?
The governments are liable to keep the frameworks rolling whether due to the different leaders or the current global scenario. The change works as a constant pressure that companies have to deal and keep up with for the way they have their operations managed. The two major aspects of government policy that has a direct impact on business are its economic policy and the legal changes.
The government allows a state to execute its autonomy in the economy by creating public corporations or state run industries. The extent to which it does so affects business costs. A more competitive business platform is constructed around them when these industries become privatized.
Similarly, the rise in interest rates raises the costs that businesses incur in order to remain functional. Individuals and companies alike find themselves in debt. The governments use this opportunity to influence markets by saving and bailing out industries especially the more important ones.
Another factor is the government spending policy and its provision of subsidies to individual business activities. For example, if the authorities decide to allocate a greater percentage of their budget to education, then businesses supplying them with the basic requirements would prosper. Granting companies subsidies and tariffs have a direct impact on market. The preferential treatment and government support becomes a powerful incentive for the industry. Robbing and draining another’s resources leads them to work harder for the desired access to capital.
Even as moving capital between the different investments allow a government favorable status, they mostly seek larger changes. Since they can legally produce their own currencies, the monetary policy of currency inflation lets them enjoy a temporary economic boost. For them it means a reduction in government bonds issued at the time. The companies end up increasing the cost price of their products. The debtors feeling all blessed and happy soon having to face extravagant interest rates.
Apart from the national laws and individual political policies, the directives and regulations of any governing body that a country is part of, have to be implemented and complied with. The businesses, as a result, have to make the respective changes even as the regulations quantitatively continue to increase and stifle the growth of the economy. According to economists, it reduces new business creation with the burden of compliance being specifically destructive for small companies.
There is no doubt that governments are the major player existing in the markets today. They are there to act as the advisory and financial service holders for the community. But, they also endorse regulations and laws that help them achieve their own business goals.
