Page 228 - DCOM508_CORPORATE_TAX_PLANNING

Unit 10: Tax Consideration in Specific Managerial Decisions

Introduction Notes

Managerial decision is influenced by a number of factors depending on the facts of a case. They
are not always guided by tax considerations. However it would be better if tax factor is also
analysed before making such decision. Managerial decisions are considerably infl uenced by
taxes, e.g., the choice of location, buying or leasing decisions, or the proper mix of debt and equity

in the company’s capital structure increasingly demand qualified employees in an economic
environment that is becoming more and more complex. Due to the worldwide economic
integration and constant changes in tax legislation, companies are faced with new challenges –
and the need for information and advice is growing accordingly. So, before one can embark on a

study of the tax consideration in specific managerial decisions, it is absolutely vital to understand
the concept of managerial decisions along with tax planning regarding employee remuneration,

Fringe Benefit Tax (FBT) and remuneration planning. The purpose of this unit is to enable the
students to comprehend basic expressions. Therefore, all such basic terms are explained and

suitable illustrations are provided to define their meaning in this unit.
10.1 Managerial Decision

Managerial Decision-making depends on ‘tax planning’. It may be defined as a systematic
approach to formulate strategies for positioning the business in relation to its environment to
ensure continued success and offer security from surprises. While no approach can guarantee
continuous success and total security, an integrated approach to strategy formulation, involving
all levels of management, can go some way in this direction. In simple words, we can state that
managerial decisions are useful for tax planning.
10.1.1 Functional Management and Decision-making

Management means doing things and getting things does by others. It is concerned with
objectives, policies, procedures, strategies, etc. Management consists of the following important
stages:

1. Planning: It is a stage of ‘Strategic Formulation’. Strategic formulation includes forecasting,
formulating objectives, policies and goals.
2. Organising: It is strategy implementation process. It includes al those managerial activities
that result in a structure of task, authority and responsibility relationship.
3. Directing: It also comes under strategy implementation process. Directing involves efforts
directed towards shaping human behaviour. It includes; leadership, communication,
motivation, morale, organisational change etc.
4. Staffi ng: Recruitment is an important function of staff. Man power is required to implement
strategies.
5. Controlling: It can be called as strategy evaluation. Controlling refers to all those activities
directed towards assuring that actual results are consistent with planned targets.

10.1.2 Other Dimension of Managerial Decision-making

The various dimensions of managerial decision-making are as follows:

1. Role of C.E.O: Chief Executive Officer plays key role in decision-making. These decisions
are related with various functional levels of organisations. Hence it is necessary that these
decisions must be made with in consultation with the CEO.
2. Preparation of budget: Decision-making involves budget allocation i.e., resource allocation
to various aspects of decision. Budget may be allocated to various factors of production.

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