How Government Fiscal Policy Affects A Business

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Unit 38- D2

Fiscal policy is a policy that aims to control government spending using taxation to control the demand in the economy. AL-MURADs objective is to make profit and increase their sales. They want their business to survive. Direct and indirect taxation help AL-MURAD achieve their aims. Corporation tax is a tax on company profits. Most businesses try to pay the least amount of Corporation tax that they possibly can and this can be done through reinvesting back into their company for the future. AL-MURAD needs to pay less Corporation tax so their cost and revenue can increase.

Value added Tax (VAT) is a tax that is charged on most goods and services that VAT registered businesses provide in the UK. It is also added to some goods that are brought into the UK form countries outside the European Union. AL-MURAD has to pay VAT. If the government reduces VAT, AL-MURAD can take the advantage of that as they import tiles from other countries. AL-MURAD can increase costs which will help their business make more profit. Due to less VAT the demand of products will also increase as the customers won’t have to pay much so AL-MURAD is likely to make profit due to that.  

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Capital allowance is when business has the ability to claim tax allowances on things that they have purchased or investments that they have made. These claims are made against the taxable profits made by the business and help to reduce tax payments.  AL-MURAD can claim capital allowance. This will help AL-MURAD to keep reinvesting in them for the future. This can help them cope with labour cost and increase the costs and make profit.

Monetary policy is a policy that aims to control the money supply in the economy. Monetary policy works by influencing the rate of interest that ...

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