Incentives for International Trade
Business Management and Enterprise (Year 12) - Environments (U3)
There are two main methods that governments use to encourage and incentivise international trade.
The first one is a government grant and is when a government gives payments to a business, which provides them with a financial advantage over competitors. This does not need to be repaid back by a business, making it an ideal source of finance; however, such grants are often difficult to obtain.
Grants are beneficial as the business can use the grant to offer lower prices for the consumers. This may increase their profits. They can also use the money from the grant for research and development purposes, which increases innovation. It also improves the overall cash flow position for a business.
There are many grants available in Australia for businesses,
The Export Market Development Grant (EMDG) scheme provides financial support for aspiring and current exporters. It encourages small and medium-sized business to consider exporting and developing overseas markets. It provides up to 8 grants for each eligible applicant. The grant reimburses up to “50 per cent of eligible export promotion expenses above $5,000, provided that the total expenses are at least $15,000”
Taxation incentives are given to firms by the Australian Taxation Office (ATO). Tax breaks/incentives are helpful as taxes affect profitability and can be problematic, especially for smaller firms. There are different taxation incentives offered in Australia:
An example of a tax incentive is the Duty Drawback Scheme. Exporters are able to get a refund on customs duty, paid on imported goods, where those goods will be treated, processed, or incorporated in other goods for export. It gives a business money that does not need to be repaid.
The Tradex Scheme is an alternative to the above scheme. The Tradex Scheme is a cash flow benefit for importers, who intend to export goods. They do not have to pay the relevant customs duty or GST at the time of import. It provides exporters with an up-front exemption from customs duty and GST for goods imported into Australia and then exported within one year.