Tax Base and Revenue Forecasting Tuan Minh Le

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

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

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

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

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. 5

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. 6

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 model and impact distribution analysis 7

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

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 9

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. 10

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. 11