Foreign Investors Only Get Rich Based on Net Income AFTER Taxes
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| Malaya Business Insight |
We must understand the concept of revenues vs. income. I guess the fools who say that only foreign investors will get rich are ignoring accounting and finance. Here's the simple definition from Investopedia that even the layman can understand:
Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations. Revenue, also known as gross sales, is often referred to as the "top line" because it sits at the top of the income statement. Income, or net income, is a company's total earnings or profit. When investors and analysts speak of a company's income, they're actually referring to net income or the profit for the company.
Using basic cost accounting to disprove a blatant lie
In short, you aren't rich until you realize how much of your sales is left after all expenses are paid. An income statement. We can think of it with common sense how we determine that the foreign investors got rich but it didn't mean only they got rich:
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| Image by Sabrina Jiang © Investopedia 2020 |
Above is another reference from Investopedia. We take a look at the accounting statement for illustrative purposes. I believe that financial information is kept confidential. However, we can make a fictitious one for illustrative purposes. We can now assume that the statement above is by the multinational corporation (MNC) investing in the Philippines. Let's imagine the statement is in Philippine pesos (PHP). We can do a basic step-by-step process to prove that when foreign investors do business--they're not the only ones who get rich.
Let's say that the major MNC had revenue of PHP 20 Million for the month. This MNC could be operating in several places. Somebody can now shout, "See I told you only they will get rich! What's in there for the Filipino people?" What happens is that there's the cost of goods sold. The MNC would have to pay for the cost of goods sold which includes local businesses that became their service providers. An MNC may want to avail of the nearest transportation company available to sell their wares. They have employed Filipino workers. They have purchased local raw materials to help them. It would be like if a Taiwanese firm would buy sugarcane from Bacolod to sweeten their milk tea. Foreigners are still restricted to owning land so they end up renting instead. All the expenses add up from gross income to net income. Gross income is income after paying for the cost of goods sold. Net income is when everything else is paid such as advertising expenses, administrative expenses (such as the salary of the human resources department), depreciation expenses (or maintenance), and any interests paid because loans might be inevitable. All these add up to net income before taxes.
Now, let's imagine how much money is left before taxes. Deductions are done but the MNC must now pay other fees aside from the renewal fees and registration fees. Taxes are paid with Value Added Tax (VAT), quarterly tax, annual income tax returns, and withholding tax. Let's say that the expenses (in total) accumulated up to PHP 8.5 Million? Deduct PHP 20 Million from PHP 8.5 Million and you get PHP 11.5 Million for that month's revenue. However, the company may pay PHP 575K in the 5% withholding tax and PHP 1.38 Million for the VAT. The MNC only gets to keep what's left of that monthly revenue after all expenses are settled. The MNC had to pay all accounts payable, get back all accounts receivable, and pay the taxes before they could say they nailed a profit for the month.
Who else benefited? You may take a look at the income statement all over again. The lessor, the supplier/s, the service provider/s, and the government all benefited from it. The only time the MNC can say they got rich (or suffered a loss) for the time being is when all expenses including taxes have been paid. In short, businesses only become rich after you still have plenty of money left after all the expenses and taxes were paid.
