Question

If a business becomes seriously behind on their tax liabilities, the taxing authorities can take the business assets. What does this indicate about the importance of taxes in relation to cash flow? Why might a business owner want to avoid such an occurrence?

Answer 1

Taxes are an obligatory statutory payments and they are to be paid because they have a priority as they are the government obligation on the part of the business so, business must be having enough liquidity in order to pay off its taxes on time else it will have to deal with the penalty or the tax authorities can also effect in various kinds of collateral damage which will be seizure of its Assets and selling of them in order to recover the overall taxes which are due to the government.

A business should always maintain its cash flows in such a way that it should always honour the tax payments on time else it will have to face through procedure of seizure of assets or the penalty procedure and that will cause the business, the loss of property and loss of reputation as well.