Tax Concessions There has always been an intrinsic link between international trade and taxation. Taxes in the form of tariffs and duties have always played an important role in trade policy and politics in the history of the world. Studies show that economic growth flourishes in a political environment that protects private property, free exchange and fair distribution of the fruits of labour. In other words, where there are free trade and business a country is likely to prosper. This clearly points to the direct link between taxation and trade, and it is safe to say that the lesser the taxes/tariff, the more the trade and income.
A tax is a financial charge or levy imposed upon a taxpayer (an individual or legal entity) by the government to fund various public expenses. Taxes consist of levies that are collected either directly or indirectly on money earned through trade and income. To clarify, income tax is a direct tax and sales and service taxes are indirect taxes. In this way, different types of taxes exist for different types of income. ITR
An import or export tariff (also called customs duty or impost) is a charge for the movement of goods through political borders. Tariffs discourage trade and governments to protect domestic industries by making imports and exports more expensive may use them. Tax, tariff and trade rules have an impact on a country’s industrial policy, investment policy, and agricultural policy. Low tariffs and customs duties encourage trade and cross border transactions. Sometimes, due to political and economic relations, regional trade barriers and tariffs are lifted between the countries that enter into what are trade blocs where this group of countries agrees to minimize or eliminate tariffs and encourage trade among themselves. For instance, India is a part of the Association of South East Asian Nations (ASEAN), which is a political and economic organisation of ten Southeast Asian countries and enables free trade among its member nations.
With free capital movement and open economic policies, countries today are free to trade with different countries. In choosing the countries to trade with, the overall financial stability of the nation is taken into consideration as the prime qualification. Countries with unstable fiscal policies and economic climates are seen as unpredictable and risky markets to deal with. This lays emphasis on the important role played by fiscal and monetary policies. A country’s fiscal and monetary policies have different purposes but are interdependent. The fiscal policy governs spending levels by adjusting tax rates to monitor and influence a nation’s economy. On the other hand, the monetary policy influences and controls a nation’s money supply thereby influencing the rate of inflation and liquidity in the economy.
From the above, it is evident that taxes play an integral role in an economy’s performance. A government that adopts and implements policies by being at par with global market conditions and trade needs is more likely to see sustainable growth and economic development.