Exercises: SAT, IVA, ISR and public debt

1. a) Explain what the IVA (Value Added Tax) and the ISR (Income Tax) are levied on.
2. b) Classify: which tax shows up on the receipt when you buy a cellphone, and which one is withheld from a formal worker's payroll?
3. c) Name two public services funded with the taxes collected by the SAT.

In Mexico the general VAT rate is $16\%$.

1. a) A TV set is priced at $\$8,500.00$ before taxes. Compute the VAT and the final price the customer pays.
2. b) A supermarket receipt shows a total of $\$1,160.00$ with VAT already included. Compute the price before VAT and the tax amount. (Hint: the total is $116\%$ of the base price.)

The ISR is a progressive tax: those who earn more pay a higher rate. Use this simplified (hypothetical) table for a monthly income:

Each rate applies only to the part of the income that falls inside the bracket.

1. a) Compute the ISR for a person who earns $\$30,000.00$ a month, bracket by bracket.
2. b) Compute their effective rate (total tax divided by income, as a percentage) and compare it with the rate of the highest bracket.

When the government spends more than it collects there is a public deficit, and that deficit is financed by issuing debt.

1. a) Explain the difference between deficit and public debt.
2. b) Debt is usually measured as a percentage of GDP. If a country's debt is $50\%$ of its GDP and GDP is $25$ trillion pesos, how large is the debt?
3. c) Suppose the interest rate the government pays rises from $8\%$ to $10\%$ per year. Compute how the annual interest spending on that debt changes and explain what it means for the budget: which items might get cut?