ACC312 Federal Taxation Application problems 1 Country M lev

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.

Solution

Answer

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