This post is about 12 consequences of extra tax payments to a business. There are many consequences of extra tax payments to the businesses. The consequences are short-term, medium-term, and long-term.
The consequences are monetary and non-monetary.
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Monetary consequences of extra tax payments
There will be monetary consequences when the business is required to pay fines, penalties, and interest. Since the money to pay the extra taxes is not money generated for tax purposes, the following are some of the ways that the business will be affected:
1. Future Investments
The business may use money from its profits, which will affect its current and future investments and deny shareholders a return on their investments.
2. Operating Capital
The business may also use operating capital, affecting operational capacity and denying it the much-needed working capital, eventually affecting business performance.
3. Extra tax payments are nontax-deductible expenses
The extra tax payments are not allowed as tax-deductible expenses. Hence, the additional payments are not deductible expenses determining future taxes and profitability.
Sources: Pixabay
Non-monetary consequences of extra tax payments
When businesses make extra tax payments, there are non-monetary consequences. The following are some of the non-monetary consequences:
1. Prescribed jail time
According to tax laws, some offenses attract prescribed jail time in addition to paying the extra taxes, and there may be jail time to be served by the offender. A business cannot be jailed, but the people responsible for business management are the ones who may face jail time.
2. Auctioning of business properties
Auctioning of business properties when the business cannot pay the extra tax payments demanded by the tax authority. The business properties may be auctioned to recover the tax debts.
Tax debts are civil debts.
Tax laws mandate the tax Commissioner to auction taxpayers’ properties and other assets to recover any tax debts.
3. Closure of businesses
Closure of businesses due to continued failure to make the extra tax payments. This is primarily where extra tax liabilities have been levied and not paid.
4. Bad publicity
Bad publicity when the tax authority demands extra tax payments from the taxpayer. Word may go around, thus creating adverse information in the public domain about the business’ tax matters. Businesses do not enjoy negative publicity because this negatively affects their operations. For example, other businesses may refuse to deal with the company.
5. Loss of business due to tax-related stress
Loss of business due to tax-related stress to the business owners resulting in any of the following consequences:
- Low concentration on business affairs.
- Tax debts that the business will struggle to pay.
- Denial of business credit.
Sources: Pixabay
6. Loss of business time
This is due to the time required to sort out the extra tax payments. Compliance with the tax laws takes the company business’ time needed to conduct the company’s core business.
7. The death of business
The death of the business is due to extra tax payments. The extra tax payments may result in the business’s death for several reasons:
- Additional taxes are high, and the taxpayers cannot pay.
- The tax authorities may decide to auction the business’ assets, thus winding up the business.
3. There may be reduced business volumes due to bad publicity.
4. Taxpayer’s previous experience with the tax authority may result in a decision to close the business.
8. Loss of investments
Extra tax payments may result in loss of investments. The loss of investments for the business will be because:
- Investments are already in place when the business owners can no longer conduct business.
- Investments through loss of potential investors.
- Loss of business associates.
9. Expenses to pay for tax expertise
Paying for tax tax expertise is costly and adds to extra tax expenses. When taxpayers do not know how to handle their tax matters, they hire experts. Some of the experts hired are:
- Tax experts.
- Tax auditors.
- Tax lawyers.
- Tax lobbyists.
This post examined 12 consequences of extra taxes payments (fines, penalties, and interest) to the business. The list is not exhaustive. There are many other consequences to the business.
This post was on 12 consequences of extra taxes payments (fines, penalties, and interest) to the business.
We trust you have learnt something.
Thank you for reading the post.
Dr. Wakaguyu wa-Kiburi
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