Business Studies – 6.1.2 Effects of government policy | e-Consult
6.1.2 Effects of government policy (1 questions)
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Possible Responses to Increased Corporation Tax:
- Increase Prices: Businesses may choose to pass on the increased cost to consumers by raising prices. This could reduce demand if consumers are price-sensitive.
- Reduce Costs: Businesses might look for ways to cut expenses, such as renegotiating supplier contracts, improving efficiency, or reducing staff.
- Invest in Technology: Investing in technology can improve productivity and efficiency, offsetting the higher tax burden. This could involve automation or new software.
- Defer Investment: Businesses may postpone planned investments that would increase profits, as the higher tax reduces the after-tax return.
- Seek Tax Relief/Incentives: Businesses could investigate available tax breaks or government incentives designed to mitigate the impact of higher corporation tax.
Most Appropriate Response for a Small Retail Business: For a small, privately-owned retail business, reducing costs is likely the most appropriate response. They may not have the financial capacity for large investments in technology. Focusing on efficiency – for example, negotiating better deals with suppliers, optimizing stock management to reduce waste, or streamlining operations – can help maintain profitability despite the higher tax. While price increases are possible, they risk losing customers to competitors. Deferring investment might also be difficult if the business needs to maintain a competitive offering.