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Tax Base and Revenue Forecasting

Tax Base and Revenue Forecasting. Tuan Minh Le Presented at Workshop on Public Finance Management in Bhutan Washington D.C., August 16-20. Purpose. For budgeting. For automated establishment of tasks for collection of taxes. . Tax Base and Revenue Forecasting Models.

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Tax Base and Revenue Forecasting

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  1. Tax Base and Revenue Forecasting Tuan Minh Le Presented at Workshop on Public Finance Management in Bhutan Washington D.C., August 16-20

  2. Purpose • For budgeting. • For automated establishment of tasks for collection of taxes.

  3. Tax Base and Revenue Forecasting Models • Macro-based modeling • Micro simulation • Monthly tax receipts modeling • Input-output approach • Aggregate national account approach

  4. Macro-based modeling • Basic data requirements • Tax collection. • GDP. • GDP deflator. • Relied on basic regression specifications. E.g., • LnT = a + bLnGDP + e

  5. Micro simulation • To forecast tax revenue, and • To assess impact of policy changes. • An example (personal income tax) • Basic data requirements: • Individual or family-based annual income tax returns. • Household surveys to cover non-filers. • CPI, growth rates of population, GDP, and investment. • PIT codes.

  6. Micro Simulation--Steps • Step 1: Sample design and database construction • Sampling (e.g., stratified: Strata established on basis of income sources, place of residence, income level etc.) • Data cleaning and sample weight (idea: distribution of samples compared with the one for whole population). • Data aging. Forecasting of growth factors; e.g., population, GDP, investment etc.

  7. Micro Simulation--Steps • Step 2: Construction of typical taxpayer tax calculator model • Typically three components: • Personal income tax parameters. • Taxpayer personal information. • Tax calculator module. • Step 3. Construction of aggregate tax calculator modeland impact distribution analysis

  8. Monthly tax receipts modeling • Basic data requirements: • actual monthly receipts. • projected GDP growth or other tax base proxies. • Where,

  9. Input-output modeling (typical for VAT model) • Basic data requirements: • Input – Output Table. • Household Expenditure Survey. • Government expenditure. • VAT code. Step 1: Construct and estimate VAT base Step 2: Estimate VAT collection taking into account compliance rate

  10. Aggregate national account modeling • Data requirements: • GDP at market price and its components; e.g., private cons., government cons. (wage and non-wage government expenditures), investment, and trade balance. • VAT code. • Foreign expenditures in domestic market and expenditures abroad by residents • Value added of exempt sector. • Output purchased by taxed sector from exempt sectors. • Input purchased by exempt sectors. • Values of goods and services provided by zero-rated sectors.

  11. Aggregate national account modeling VAT base (prior to further adjustments): * For framework of estimation, see Zee, “Value-Added Tax,” in Tax Policy Handbook, Shome, ed., IMF 1995.

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