Why is paying taxes important?


The amount of tax paid by enterprises impacts investment and growth. Businesses are more likely to opt out of the formal sector when high taxes. According to a study, higher tax rates are linked to fewer traditional enterprises and poorer private investment exempted goods under gst. A ten-percentage-point increase in the effective corporate income tax rate is associated with a two-percentage-point decline in the investment-to-GDP ratio and a one-percentage-point decrease in the business entry rate. 

Reduced output

Over the next three years, a tax increase corresponding to 1% of GDP reduces output by approximately 3%. According to research into multinational corporations’ investment decisions, a 1% increase in the statutory corporate income tax rate will cut local profits from current investments by 1.3 percent on average.  A 1% rise in the effective corporate income tax rate reduces the likelihood of creating a subsidiary by 2.9 percent in a given economy. 

Profit taxes

Profit taxes are only a portion of the entire cost of doing business (around 39 percent on average). The nominal corporate income tax in Republica Bolivariana de Venezuela, for example, is based on a progressive scale of 15–34 percent of net income, but the total business tax bill—even after deductions and exemptions—is 73.31 percent of commercial profit due to a series of other taxations including (a profit tax, four labour taxes and contributions, a turnover tax, a property tax and science, technology, and innovation tax).

Taxation rates 

Maintaining appropriate taxation rates can sustain the growth of the private sector and the formalisation of companies. Small and medium-sized businesses, which contribute to economic growth and jobs but do not generate significant tax income, benefit from low tax rates. Micro, small, and medium-sized businesses account for more than 90% of taxpayers in Sub-Saharan Africa and the countries like the Middle East, and North Africa but only generate 25–35 percent of tax revenue, according to typical tax revenue distributions by company size. Imposing high tax rates on enterprises on this site may not generate much income for the government. Still, it may lead businesses to shift to the informal sector or, worse, discontinue operations.

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In Brazil, the government established Simples Nacional, a tax system that makes tax collection easier for micro and small businesses. The initiative resulted in an increase of 11.6 percent in the company licence rate, a 6.3 percent increase in the registration of microenterprises, and a 7.2 percent rise in the number of companies registered with the tax authorities, lowering overall tax costs by 8%. As a result of increased tax payments and social security contributions, revenue collections grew by 7.4%. Simples Nacional is also attributed to raising formal-sector enterprises’ revenue, profit, paid employment, and fixed capital.


Did you know that France is the first country to implement gstt? Firms are worried about the amount of tax revenue they receive. Because infrastructure is so crucial in determining the location of economic activity and the kind of sectors that can emerge, it is crucial for the smooth operation of an economy.

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