Corporate Income Tax and Tax Avoidance
Corporate income tax is a tax levied on the profit of a company by the government. The rate of this income tax varies from country to country. Corporations are taxed like people, although they are mare legal entities very separate and distinct from the operators or owners. Companies, however, try to use every way possible to reduce the cost of taxes they pay by reducing their taxable income. In most cases, the effective rate of corporate tax is 18%. However, countries have used their regulations to impose more substantial taxes on individual companies. In the United States, for instance, the rate of corporate income tax has risen to as high as 40% in the recent days, making other corporations avoid taxpaying. Since almost half the number of corporations in the United States are "S" corporations, they avoid paying taxes in two ways; the pass-through companies do not pay corporate taxes, but pass corporate income, deductions, credits and loses through their shareholders who are then taxed on the same profits or losses at the rates stipulated in their income tax. Secondly, tax avoidance by these firms is done by reinvesting the earned profits overseas. Even though there is a preference to bring home the cash, most of them avoid the higher tax rate, for it's much cheaper for them to borrow at lower interest rates in the states in this case, than to bring home the earnings for taxation. This makes corporations heavily loaded with debts in the U.S and very rich overseas. The territorial system is sought to be adopted by the United States jobs and the tax cut Act to change the current situation on the taxes. This will bring adjustments and improvements in the sector as it will raise the GDP of the country (Pomerleau, 2014, p. 436).
Companies and Tax Avoidance
Companies have complicated tax structures. Starbucks, for instance, made a sale of over 400 million Euros in the UK last year, but failed to pay its corporate taxes. It instead transferred its money to a sister firm in the Netherlands and brought home from Switzerland coffee beans. In the process, the company paid high-interest rates on borrowing from other parts of the business. Other companies in the spotlight for the same include Amazon and Google companies which make a massive sale and pay no taxes at all. However, what the companies do is legal since it's not an evasion, but a mere avoidance of tax payment. This avoidance has been aired in the media in an individual level or a higher level. The blame has led to the shame of the highest order to the companies. There has been growing momentum for these companies in the past years, with a paper recording how tax avoidance has robbed the services of the public as was reported by ascertaining minister in the UK. According to an expert at a business school in Manchester, the shift has suddenly changed to the recession and tax avoidance is no longer a victimless crime. Murray Worthy, a war on tax justice campaigner, also has argued that there is a recent change in the perception of the public on the same (Schippers " Verhaeren, 2018, p. 61).
Ethics of Tax Avoidance
Discussions of tax avoidance ethics have flooded the Nations; everyone speaks and condemns the act, unlike a few years ago when the issue was left on the hand of the activists and the campaign groups. The Journalists and newspaper groups are doing an important role in conducting their investigations on the issue of tax avoidance by the companies. The UK public Accounts committee has called on the bodies involved to come out firmly and condemn corporate tax avoidance. Several members of parliament have also called on the government to name the companies involved in the improper share payment (Kopczuk, 2007, p 1821). This however did not materialize as the prime minister, and the Treasury chief secretary said that could breach the confidentiality of the taxpayer. Regarding reputation, the companies need to do something in correcting what is currently in the media. Starbucks, for example, tends to avoid the fact that they owe a lot of cash to the government regarding tax. Taking this to be true and having a reputational impact, though looking weird regarding the system of charge, the tax system could, therefore, be voluntary. The reputational side of a firm is very vital and should be protected from all incurable costs. Damaging the reputation of a company has consequent damage to the financial value since customers always posses' very long memories and the customer's emotional attachment to a given brand is very critical to his or her loyalty (Saez " Zucman, 2016, p.519).
Public Response to Tax Avoidance
Individuals, as a result of tax avoidance, can impose a boycott of a company's products, this is another shaming consequence that may result in the company making massive losses, especially when the information spreads on the social media since a small group of people do the activation and the fermentation of dissent among other groups something very harmful to the company upon taking effect. Starbucks, Amazon and even Google companies are by no means unique in reducing to a certain level their tax liabilities In the UK. Individuals always try to minimize their tax bills by exploiting rules in tax, inheritance or donating to charity. For decades now, more giant multinational corporations have been using different methods to enhance tax efficiency which is a healthy business activity. A problem only comes when one feels like a given company has crossed a boundary and what it does to be tax efficient is inappropriate morally if not legally. Many companies believe that it's about achieving business fairness. To some extent, it becomes very frustrating for the companies which pay a lot of taxes, which could otherwise be avoided while overseas (Eshghi et al., 2016, p. 111).
Simplifying the Tax System
The only solution to the issue of tax avoidance is merely simplifying the system of tax in the UK and not speaking all over about the companies who fail to meet their taxation requirements. If the companies are considered moral to have taken the available loopholes to avoid taxation, then the government or rather the members of the parliament should first be held accountable for creating the so-called gaps. Taxes should be made simpler to relieve the companies of the burden that the complicated tax codes have imposed on them even as they try to perfect the situation of tax payment and to decide to terminate the avoidance situation that has lately become rampant. For legitimacy, a company may make better revenues and in return pay low taxes. The government should be able to issue payable amounts of taxes to the companies and not tend to make lots of profits from them inform of a burden like the situation in the U.S. which is very aggressive as analyzed below (Armstrong et al., 2016, p. 1).
Corporate Income Tax in the U.S
Figure 1: Analysis of corporate income tax in the U.S for the past five regimes
Year tax rate president( regime)
1979 46% Carter
1987 40% Reagan
1988 34% Reagan
1993 35% Clinton
2018 21% Trump
As in the above table, the taxes were dropping with only one increase during the bill Clintons regime back in 1993. However, the drops are as a result of different reasons. For example in 1987, there was a tax reform Act which was passed by the united states government to reduce the chargeable taxes on companies which were at 46%. A further reduction was witnessed in 1988 whose main aim was to fight the recession. In 1993 however, Clinton increased the payable tax by 1% following the omnibus budget reconciliation Act. In 2018, Trump has reduced the corporate tax rate to more allow rate of 21% making it easier for the corporate companies to affect their taxable income payment. This is expected to reduce possible instances of avoidance in the states (Gallemore " Labor, 2015, p. 149).
The Impact of Tax Policy on Economic Growth
In my opinion, the structure and the corporate tax change are very critical to achieving economic development and growth. Tax cut may encourage massive investments in a country by both individuals and companies, while if there are no improvements there will be a budget deficit which will reduce the national savings thereby increasing the interest rates in the long run. The net effect on growth is not sure but I suggest that it might be either negative or tiny. Measures on base broadening can do away with the tax rate cuts effects on budget deficits, reducing the results in labor supply, investments, and savings thus reducing direct consequences on growth. However, the results of the research show that not all changes or improvements in tax will have a similar impact on growth. Reallocation of resources towards economic value can increase efficiency and raise the size of the economy potentially. There is no doubt that tax policy can affect financial choices and tax rate reduction will naturally lead to an expansion of the economy in the end. There is a theoretical presumption that tax improvement should improve the overall size of the country's economy even if the effect is based on some factors to do with risks and uncertainty. The fact many firms avoid is that the tax base broadening by eliminating the expenditures raises the effective tax rates that are faced by both firms and individuals thus operates in a direction that is opposite to the tax rate cut and increases their effects on economic growth. Well-designed corporate tax policies can raise economic growth, but this comes with other demerits, thus giving no securities that not all tax changes will be more growth-oriented (McGuire et al., 2014, p. 1487).
Corporate Taxation and Social Responsibility
When it comes to corporate income tax, all the affected sectors should pull up their socks as far as tax payment and economic development are concerned. The government, individuals, and even the companies should adjust to the current world demands economically. Tax avoidance while considered legitimate is to some extent very bad when it comes to using the unintended arrangements with the government as an escort to tax advantages. The use of overseas havens, for example, to avoid tax and bend the laid down tax rules may be illegal, especially if intended to evade tax. Tax payment should be taken as a social responsibility. Therefore the multinationals should not avoid paying their fair share since the money is used by the government to impact every citizen. This avoidance of corporate tax by wealthy individuals in the UK and the UK-based companies, therefore, presents an ugly image in the modern days. Tax avoidance makes a company more vulnerable to instances of selfishness and greed, destroying the company reputation and damaging the public trust in it. Companies like Amazon and Starbucks faced boycotts due to their tax policies. Giving a fair amount of money as the tax is a socially responsible thing for companies to do as this will provide funding for public amenities like education, healthcare, and infrastructural developments, which the same companies depend on either directly or indirectly (Guenther et al., 2016, p. 115).
The Ethics of Tax Avoidance
Tax avoidance to me is an immoral and unethical activity carried out by corporate companies and individuals, and it undermines and belittles the tax system integrity. The company's directors should also maximize the value they deliver to their shareholders like keeping the cost of taxes, to minimize it within the realms of that which is legal. The general public has a duty to ensure that the business in every given nation pays their fair share of tax. They should ensure that the burden of tax does not become unfair to the taxpayers who abide by the rules and provide their fair share accordingly. There should be anti-avoidance regulations to bar individuals and companies from avoiding corporate tax payment. The management will help clarify which tax schemes are illegal and which ones are considered abusive by the government and therefore there is a need to abolish. Remember, businesses mostly need certainty in the tax system imposed on them, that is, they would want to know the estimate of their tax bills to be able to strategize on their investments accordingly. This should happen in advance and not when the business has already begun. Moreover, this will help offer clarifications on what fair tax policies are and be pinned by the ethical principles of consistency, accountability, and even transparency. Planning arrangement of tax proceeding beyond the law, policy and exploits the tax system deliberately are always considered unethical. If the companies chose it as their duty to maximize profits for their stakeholders, it would bring benefits to the institutional investors, which in turn a societal benefit (Kubick et al., 2016, p. 1751).
Transparency and Responsiveness in Taxation
The public again should be aware of where and when their money is spent and what benefits they get from the expenditure. Arguments against tax avoidance are not getting it of late; it is more political than reality. The government should ensure that corporate taxes are a fair return to society. Instead of hiding behind the firms for avoiding taxes, the business should be able to practice transparency in their tax planning. The government needs to communicate their position and their law interpretation on the issue of tax avoidance. Similarly, they need to be very frank when handling the same as this will help restore the public trust in the so-called government and the firms as well. The government can achieve the improvement of corporate tax in the following ways; modifying the alternative minimum tax, this will both simplify the income tax and eliminate the need for patches annually. Secondly, the government can remove the income phase-out and limits to streamline fillings and retain the benefits to a higher income taxpayer. Retaining limits of income on tax preferences but putting them to level that is uniform, will also reduce the complexity of the taxes and focuses on the low and moderate-income taxpayers. Consolidating tax benefits for educational purposes is another way by which the government can help improve the tax system, which will aid in every taxpayer having knowledge of his or her eligibility as far as corporate taxation is concerned. By implementing such methodology, there will be an understanding of who should pay the corporate tax, what to expect from the taxpayer, and even how the government would go about the case of such individual or company involving itself in tax avoidance (Koester et al., 2016, p. 3285).
Executive Characteristics and Tax Avoidance
Most studies that have been conducted on the corporate tax and the issue of avoidance naturally revolve around the company-level characteristics leaving out the perspective of how individual executive features could affect tax avoidance. The research question I would ask when researching the issue of tax avoidance today is; do executive characteristics affect corporate tax avoidance? The paper would investigate whether or not executives, especially those who possess superior ability to manage corporate resources, involve themselves in higher tax avoidance efficiently. The expected results would be that when moving from the lower to the upper level of the managerial ability, there would be a potential reduction of activity in the first year of the four years of the reduced cash rate of tax given in the research. By examining how higher-ability managers limit their corporate income tax payments, I would expect to find out that they involve themselves in significant state and national tax planning activities, channeling more incomes to foreign havens, make more claims on research and developments, and incur greater profits on assets business. This means that the study will be able to look at the manager, his or her role in a company and how he or she helps the company move on and make profits as it pays its taxes as required by the corporate law. This is a field that has been over the years avoided by the past researchers. It is, therefore, essential to present the world with an in-depth analysis of what is to be done as far as the managers are concerned and about corporate taxation, especially in the UK as has been discussed above (Dowling, 2014, p. 173).
Closing Thoughts
In conclusion, it is crucial for the government of any given nation to harmonize the rate of tax payment, especially the corporate income tax, so as not to discourage the companies from paying their taxes due to higher standards. Most companies should reduce their tax liability following the directives agreed upon by the council involved. The instruction, which aims at the protection of individual and domestic corporate tax avoidance, is made to address the tax-based erosion and shifting of profits. The corporate are discouraged from taking advantage of the differences between the national tax systems to reduce and limit their tax bills. Individuals should help companies be reminded of what they are expected of; by avoiding corporate tax payment, the government is limited on how to provide the citizens with proper services, the people utilizing these government-provided social services then suffer a great deal. Students, for instance, are understood to be suffering since the government cannot offer them the required and essential learning materials. This makes it difficult for such students to perform according to their capabilities, hence leading to failure in some sectors. Medical services are also affected so much in a nation whose companies do not pay their fair share, making healthcare services so poor. This is why as I conclude, call upon the members of the public to help intervene in seeing that corporate tax payment becomes the societal right of the individual living there and who conducts their day-to-day business activities in the nation involved. The government, on the other hand, should allow a smooth running of the companies by not exaggerating the tax rate as has been witnessed in some areas of the world. There should be a fair share for every company so that there is never the issue of some companies paying a lot of taxes as others pay peanuts. A company will be defined by how loyal it is to the nation and how much it follows the rules and stipulated company operational regulations of the land. Many companies have lost their image due to improper conducts in society like corporate tax avoidance. This vice, however, considered legitimate, should be avoided as it makes the government of the country weak regarding their GDP (Donohoe, 2015, p. 23).
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