Personal Income Tax and Revenue Forecasting Assignment - 1

Personal Income Tax and Revenue Forecasting - Assignment Example The lower tax rates are expected to stimulate economic activity and to encourage business to move from the shadow to the official (taxpaying) economy, so some of the revenue loss will ultimately be recovered. The Ministry of Finance forecasts collections of 7,789,000 markka (MK) for 2001. Data on tax collections are reported on the following page. Based on the information provided, the ministry definitely needs to revise its 2001 forecast. This is because the pace of tax revenue being collected is not coinciding with its revenue forecasting, which is 7.8 million markka. Basically, at its best point, the tax revenue averaged about 1.2 million markka, at the end of 1999 and 2000. However, the data in 2001 shows a significant drop compared with the past three previous years when tax revenues were compared. This means that it will probably take about 20 more years or so until tax revenue reaches 7.8 million markka, because if it took 3 years to get to 1.2 million in revenue—one multiples 3 by 7 and one gets the number of approximately 21 years to create that amount of revenue. Of course, revenue could increase exponentially in years to come, thus making the target goal of 21 years achieved in a faster time period. However, the important point to remember is that there are several factors that go into how such data is arrived at in the first place. So, supposing that Vardar’s markka strengthens as time goes on and that more people are able to pay taxes due to the economy being stimulated and people being freed up to make more money—it is entirely possible that the economy will grow significantly before the 21-year window of economic growth is due. It depends on if people can get the jobs to provide for their families and support the economy. What factors might influence the patterns seen in the data include a variety of things. In former Soviet