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To begin with, tax noticeably influences company’s revenue. In particular, tax imposition leads to the reduction of company’s revenue. Entrepreneur needs to pay tax, so he spends extra money and gets less profit in case if the price of goods or services that he sells remains constant. There is a very clear connection between company’s revenue and consumer buying power. If the entrepreneur doesn’t want to loose the profits by paying tax, he can increase the price for goods. But in this way, price increase leads to reduction in consumer buying power. This reduction proportionally depends on the tax size. If the increase is noticeable, consumer buying power will decline, which will lead to a significant loss in sales. In addition, by increasing a price, the entrepreneur should be sure that there is no other company which will sell the same goods or services at the lower price. By increasing prices the entrepreneur can loose his customers, which, in turn, will also lead to the profit loss. This theory doesn’t work only for enterprisers which produce daily products and consumer goods that we need in the everyday life. However, there could still be other companies which produce the same goods at lower prices. Tax doesn’t influence company’s revenue if the company is monopolistic. In case consumers have only one supplier and no choice, the monopolistic company can set up any price without any decline in sales and profit.
In addition, the entrepreneur can compensate tax payments for the decrease in salary. But this policy can lead to resigning of valuable employees and productivity decline.
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For example, telecommunication industry is greatly influenced by tax. This industry has strong competition and is price-sensitive. The companies in this industry have a goal to decrease their expenses for being able to sell their service at better price and attract clients. Tax changes in this industry lead to profit loss, debts and even bankruptcy.
To conclude, the influence of tax imposition on business gains and sales is diverse and depends on the nature of business itself.
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