Question Tag: Government Policy

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  • 10 Marks

AFM – Nov 2017 – L3 – Q4a – Economic environment for multinational organizations

Discusses five ways in which government action can affect the decision-making role of a finance manager.

The economic environment within which the Financial Manager must operate is subject to a variety of influences, one of which is from the government.

Required:
Explain FIVE areas in which government action might affect the problem-solving and decision-making roles of a Finance Manager. (10 marks)

Government action can significantly impact the financial decision-making process in the following five areas:

  1. Credit Controls:
    Governments can impose credit restrictions through central banks, limiting the amount of credit available to businesses. This increases the cost of borrowing and makes financing options more challenging, which affects liquidity management and capital expenditure planning.
  2. Taxation Policies:
    Changes in corporate tax rates, sales tax, withholding tax, and capital allowances can influence cash flow, profitability, and the overall cost of operations. Finance managers must account for these when making investment decisions or determining dividend policies.
  3. Custom Duties and Trade Tariffs:
    Governments may introduce or adjust custom duties and tariffs on imports and exports. High tariffs can increase production costs if the company relies on imported raw materials, while export restrictions could limit market expansion opportunities.
  4. Exchange Rate Controls:
    Governments can control exchange rates or impose restrictions on the use of foreign currencies. For multinational firms, this affects currency risk management, profit repatriation, and the cost of international transactions.
  5. Price and Wage Controls:
    Government-imposed limits on prices or wages can affect a company’s profitability by restricting the ability to pass on cost increases to consumers or reduce costs through wage adjustments. This forces finance managers to find other ways to optimize costs and maintain financial stability.
  • 5 Marks

TX – May 2019 – L3 – Q1d – Tax Planning

Discuss circumstances under which government should run state enterprises as business entities to increase revenue.

Some political analysts have often made the claim that governments over the world should create enabling environments for private businesses to flourish, including granting tax incentives as a way of creating jobs for the unemployed youth, and that governments should not directly engage in business. They sum this up often with the statement that “Government has no business doing business.” Others, however, hold a contrary view on this matter, making this an endless debate.

Required:

Under what circumstance would you encourage the running of state enterprises as business entities by the government to increase revenue as against the imposition of new taxes for the same purpose?
(5 marks)

  • Economic Performance: Taxes are a function of economic performance. When an economy is not doing well, the imposition of taxes may not generate significant income. In such situations, the government may need to run state enterprises to create employment and generate revenue directly.
  • Provision of Goods and Services: The government can run key institutions to provide essential goods and services at subsidized rates, benefiting the lower-income brackets while generating revenue for state projects.
  • Support Government Projects: Profits generated by state-run enterprises can be used to fund government projects, reducing the reliance on taxes as the sole source of revenue.
  • Employment Creation: By managing state enterprises, the government can create jobs, helping to alleviate unemployment and its associated social challenges.
  • Avoiding Over-Taxation: Relying solely on taxes to fund government operations can lead to over-taxation, which may have negative economic and political consequences. State enterprises provide an alternative revenue source.
  • 10 Marks

BMIS – Nov 2023 – L1 – Q2a – The external environment

Explain five ways the Government of Ghana can improve the business environment to help private enterprises thrive.

It can be argued that the public sector must not directly engage in business but rather direct efforts and resources at securing an enabling environment in which the private sector which has been described as the engine of growth of the economy can flourish.

Required: Explain FIVE (5) ways by which the Government of Ghana can improve the business environment in order that private enterprises can thrive. (10 marks)

How the Government of Ghana can create an enabling business environment

  • The government must ensure that adequate capital is accessible to existing businesses as well as prospective entrepreneurs. This can be done by making it possible for investors to obtain loans from financial institutions without being asked to provide collaterals.
  • Not only must capital be accessible to investors but interest on loans should be such that it does not unnecessarily increase the costs of operations, thus leading to the collapse of many firms.
  • Infrastructure – the government must extend social infrastructure like good roads, electricity, water, etc to all parts of the country to attract private investors to the locations they decide.
  • The government should initiate and implement policies that protect local private businesses against external competition. This can be done by limiting the importation of goods which can be produced locally.
  • Tax holidays could be granted to start-ups to enable them find their feet in their respective industries.
  • By simplifying the process of registering and running companies, the government would be encouraging people to invest in the economy.
  • The government can reduce the cost of production of local firms by reducing the taxes imposed on imports of machinery and raw materials.
  • 6 Marks

BMIS – May 2017 – L1 – Q1a – The business organization and its stakeholders

Describe three benefits and three disadvantages of privatization.

a) Privatisation can refer to the act of transferring ownership of specified property or business operations from a government organisation to a privately owned entity, as well as the transition of ownership from a publicly traded, or owned, company to a privately owned company.

Required:
i) Describe THREE potential benefits of privatisation. (3 marks)
ii) State THREE disadvantages of privatisation.

(3 marks)

i) Potential benefits of privatisation:

  1. Improved Efficiency: Private companies have a profit incentive to cut costs and be more efficient.
  2. Lack of Political Interference: Governments are often poor economic managers, influenced by political pressures rather than sound economic and business sense.
  3. Increased Competition: Often occurs alongside deregulation, allowing more firms to enter the industry and increase market competitiveness.

ii) Disadvantages of privatisation:

  1. Does Not Necessarily Increase Competition: Whether competition increases depends on the nature of the market.
  2. One-off Sale Proceeds: The government loses out on future dividends from the profits of public companies.
  3. Potential Exploitation: Private companies may exploit the public, leading to higher costs and lower standards.

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