Question

ACC312 Federal Taxation

Application problems

1.) Country M levies a 10 percest 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

Tax collected is directly related to sales value and excise rate.With increase in excise rate tax collected will be more and viceversa.

Computation next year's excise tax revenue assuming;-

A. Next year's tax base equals the current year base

Next year's revenue=($8000000 base*11%) =$880000

B.Next year's tax base increases to $9.3 million.

Next year's revenue=($9300000 base*11%) =$1023000

C.Next year's tax base decreases to $7 million.

Next year's revenue=($7000000 base*11%) =$770000