ABSTRACT
This chapter examines the role of taxes on capital and profits. The case for a tax on capital employed by socialised enterprise was discussed in terms of its desirable allocative effects. Taxes on capital employed, usually known as capital charges, have been levied on socialised enterprises in the socialist economies of the Soviet Union and Eastern Europe since around the 1960s. Capital charges were introduced to improve the mechanism of investment planning and finance, and to lead to a more efficient allocation of investment. Capital charges were introduced in most Comecon countries in the 1950s and 1960s, as part of a wave of attempts at economic reform. In the economic theory of public finance, the economic effects of profits taxation, especially the incidence of the tax represent an area of controversy. Provided taxable profits are equal to pure profits, a profits tax on the socialised enterprise would leave price and output unaffected in the short run.
