Impact of Government Policies on Trade : Governments of many countries enact pol

Question

1. Impact of Government Policies on Trade: Governments of many countries enact policies that can have a major impact on international trade flows
   1. Explain how governments might give their local firms a competitive advantage in the international trade arena
   2. Why might different tax laws on corporate income across countries allow firms from some countries to have an competitive advantage in the international trade arena
   3. If a country imposes lower corporate income tax rates, does that provide an unfair advantage

Explanation / Answer

1. In the international business arena one government is providing some sort of arrangements to its local business players with a moto to get foreign currencies to local.

Take an example of India, it is majorily the exporters of ITs and ITES services in service sector. Government facilitate the IT exporters and some Manufacters with the name of Special Economic Zones, which has the characteristic of zero tax payment. Some sort of financial assistance also providing with the help of EXIM bank which established with the objective of promoting the exports.

2. Corporate tax is the direct tax which every commerical entity has to pay part of its profits to the local governments. If the tax rate is lower than others, it means that they can hold higher profits with their hands and can announce higher dividends. If the tax rate is high, highest amount of profits should be pay to the governments and the owners may hold little part of profits.

the motive of any business is profit, if profits are high, automatically investors are interested to invest in such business.

3. Every country has a right to decide how much is the tax rate should be impose on the earnings of the commercial entities. But if any country is offering less tax or zero tax when compares to other nations, industrialist may have an interest to invest in such countries.

But investing in a business is not only based and restricted to tax rates, there are many reasons to decide to make an investment or not. Some of those are Infrastruture facilities, avialability of skilled man power, availability of raw material, geographical conditions of a nation etc.

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