Direct and Indirect Taxation and its Impact on Business Decisions

Abstract

The aim of my research is to provide a high-level overview of how corporate and individual income taxes, both alone and in combination, are likely to affect the relative merits of various investment opportunities for NSE-quoted companies, the relative expenses of various financing options for businesses, and the overall value of these companies. Kenya's National Securities Exchange (NSE) is a company-formed market for securities that has been operating since the 1920s. At now, 51 firms are listed on it. It is common to hear complaints about unfair and oppressive double taxation, corporate shares paid dividends are subject to taxes both on the company and the person. Miller & Modigliani (1963) and French & Fama ~8) both stated that in ideal capital markets, a company's financing choices do not affect the company's value. Distribution o operational cash flows among equity& debt claimants did not effect to overall stream value in ideal capital markets. But an ideal fiscal policy may emerge from imperfect markets. - (1980) DeAngelo and Masulis, and ( 1997) Hubbard and Michaely. A firm's investment finance choice is defined as the kind and quantity of financing chosen by the firm (Brealey et.al., 2007). When businesses want capital, they may approach investors and ask them to put up money in return for a portion of the company's future earnings or a predetermined rate of interest. Investors who provide equity funding are known as equity investors. Investors in the second scenario are more like debt investors; they lend money with the expectation oilpayment at a later date. The capital structure decision refers to the option between debt and eq!!i!Y financing. he source ofthe firm's long-term funding is referred to as "capital" in this context. A company is termed to be "raising Capital" if it is trying to get funds for the long run. One way to look at a company's worth is to compare its book value to its market value.