Question

Country M levies a 10 percent excise tax on the retail price of any automobile purchased in the country. This year, the aggregate purchase price subject to tax was $8 million, so current year revenue was $800,000. Country M plans to increase the tax rate next year to 11 percent. Compute next year’s excise tax revenue assuming:
a. Next year’s tax base equals the current year base.

b. Next year’s tax base increases to $9.3 million.

c. Next year’s tax base decreases to $7 million.

Answer 1

Answer:

Explanation:

a) In the case of next year’s tax base equalling the current year base:

Tax revenue = 8,000,000*11% = 880000

b) In the case of tax base increasing to $9.3 million:

Tax revenue = 9,300,000*11% = 1,023,000

c) In the case of tax base decreasing to $7 million:

Tax revenue = 7,000,000*11% = 770,000