Part VII - Taxes
How taxes can affect your project
Paying taxes, as you know from your personal experiences, requires a cash outflow. When you go out to lunch, you order a $5.00 sandwich but you have to pay $5.25 for the sandwich at the register. You are not allowed to delay the payment of the 5% sales tax until later - you will not get your sandwich unless you pay the price of the good plus the added tax - with cash! Unfortunately, taxes in a business are similar. Taxes paid to government authorities reduces the operating profits of refineries and petrochemical plants and are cash outflows, reducing the amount of cash available to invest in your project, for example. When applying tax considerations to costs, you can use the following formula for charges that are tax deductible (most business expenses):
A similar formula applies to income:
This is the same formula for individuals. Let's assume a chemical engineer makes $1,000 in weekly salary. Because she is in the 30% income tax bracket, her take home pay is only $700:
Taxes on overseas projects
Multinational corporations also need to be concerned about taxes in each country in which they do business. The United States
and France, for instance, have an income tax treaty that avoids duplicate payments. Some countries may charge a tariff (essentially another word for "tax") on imported products, which might be your raw materials or finished process streams. Foreign taxes get even more complicated depending on where the transaction takes place - on the shipper's dock, on the ship itself, or at the destination port. Tax laws are very complex and each project you work on may require tax advice from experts within your company. Understanding that tax deductible expenses may benefit the net income and that income taxes will reduce the profitability of your project will start the conversation with your bo$$ so that your project will be successful and deliver maximum profit to your company.
I hope you've enjoyed this series of posts on financial topics and how to talk to your bo$$. Engineers are very talented and logical decision-makers. Being armed and ready to talk to your bo$$ about financial matters will help your projects become more successful, and I hope will allow you to make the best financial decisions in your personal life.
Please leave a comment below and let me know. I'd love to address them in a future blog post on ChEnected.org. image of Benjamin Franklin courtesy of Wikimedia Commons image of Eiffel Tower courtesy of landscape-photo.net