Country M levies a 10 percent excise tax on the retail price of any automobile p
ID: 2328287 • Letter: C
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 $6.1 million, so current year revenue was $610,000. Country M plans to increase the tax rate next year to 11 percent. Compute next year’s excise tax revenue assuming next year’s tax base equals the current year base. Compute next year’s excise tax revenue assuming next year’s tax base increases to $7.4 million. Compute next year’s excise tax revenue assuming next year’s tax base decreases to $5.1 million.
Explanation / Answer
Solution:
Given data,
Current year revenue was $610,000 ,
and 11 percent tax rate
Now we need to calculate the required,
(a). Next year excise tax revenue will be:
$610,000 * 0.11 = $67,100
(b). Next year excise tax revenue is increased as $7.4 :
$740,000 * 0.11 = $81,400
(c). Next year excise tax revenue is increased as $5.1 :
$510,000 * 0.11 = $56,100