A company can earn more for the government than for its investors
Most government officials envy business people. They think that the entrepreneur earns a lot of money, and it is only right that the government gets its pound of flesh as contribution, a very small part of what the entrepreneur makes.
The reality is that business is not that easy. The failure rate of new businesses within the first five years varies from around 40 to 80 percent. In most areas, competition is now so fierce, that a business that pays back the investment within 4 to 5 years is already considered a gem of a find. A business may only have superior returns if it has already established a reputation, or it has a sort of monopolistic market share or brand name.
I am not kidding that it seems that every year I run the business, I seem to issue a bigger amount going to various government agencies than what I see growing in my money account. Let us take a dive.
Assume that an entrepreneur invests 50 million pesos to set up a facility in a locality. Let us say that the business generates sales of 70 million and earns 5 million pesos every year.
Of this, let us say that the various business taxes, income tax, permits, real property assessments, doc stamps, VAT , regulatory fees, and others total to 2 million. That means the entrepreneur makes a net of 3 million and 2 million goes to the government.
However, let us say that the business also hires 100 people, the average of which gets P10,000 per month or P130,000 per year. That is 13 million pesos per year in payroll.
For a person earning P130,000 annually and is single, he can be assessed close to P10,000 in income taxes, as well as P15,000 annually in Social security, Philhealth, and Pag-ibig contributions. That is P25,000 per person or 2.5 million for 100 workers annually.
So in short, the government benefits yearly in the tune of P2 million in company taxes, plus another P2.5 million in taxes of personnel and payroll taxes, plus a potential of over 50 million in local purchases of the firm, it can be safely said that the government is as much a beneficiary of the business than its investors.