In order to understand the practical application in which this question is answered a short description of the country is herewith given:
The country being used is a small island state of the coast of Panama. Its called Barokaland. Three main economies sustain the island, namely fishing, growth and export of juniper berries ( for the making of gin) and tourism. The fishing industry is mainly made up of local residents, who make use of closed corporations and private companies to operate within. Fish is mainly exported and amounts to 30% of the country’s income. Tourism is the fastest growing economy and has increased its stake in the economy of the country from 25% to 45% over the last 10 years. Most of the businesses operating in the tourism industry operate in either private or public companies. Two major international hotel groups have invested in the island, and have to in terms of their agreement with the government employ 70% of their entire workforce from the island. The export of juniper berries constitutes 20% of the countries economy. Only one company is engaged in this market segment, this publicly owned company source the berries from farming cooperatives, from where they sort, wash, grade and package the berries for the export market.
The average income for a Barokian is $10 000 per annum. The country has an 88% employment rate and a well – developed social welfare system. Personal income tax is a standard rate of 25% on all income earned, this therefore equate to horizontal equity, but not vertical equity.
Barokaland is a signatory to the OECD.
Classic taxation of companies:
In terms of the corporate tax structure in Barokaland, all companies are deemed to be legal entities, with the accompanying legal rights and obligations. All companies must be registered with the government. Partnerships are not deemed to be companies; each partner is taxed as if they are an individual.
Companies are taxed at a standard 15% on profits prior to taxes. All profits not paid out which is more than 50% of the dividend paid are in addition taxed an additional 10%.
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