Personal Income Tax and Revenue Forecasting of North Cyprus

ABSTRACT: This thesis investigates the income tax revenues and social security contributions that are generated from the taxation of individuals in the Turkish Republic of Northern Cyprus (TRNC). Income tax is one of the subset of taxes included in the direct tax system of North Cyprus. Forecasting the specific amount of revenue for a range of tax policies is one of the targets of this study. Actually high total tax revenue is arises from the high tax rate which cause the tax evasion by individuals. On the other hand, large deficit in the social security system is one of the issue of TRNC. Therefore, there is requirement to find the system which solve the deficit of current system and also cause more incentive for people to pay their income tax. To achieve this, a number of steps are required to be taken. Firstly, the components of the personal income tax system such as the total allowances, statutory tax rates and income brackets which are assigned to each part of the chargeable income according to the tax law of TRNC are required to be considered. Secondly, it is required to build a tax calculation model that is based on these components and regulations. The third step is to find the best methodology to calculate the aggregate amount of taxes payable for each taxpayer according to their income distribution. The calculation of tax liabilities in over 11,000 taxpayers both for the current tax system of TRNC and for the proposed changes in the structure are made in revenue tax system and also the rates of overall security contributions changed. At the end the outcomes of the model are analyzed both in the current and the proposed systems. Accordingly, the best set of income tax and social security policies are recommended. Keywords: Personal income tax, tax return, micro simulation, revenue, social security contribution. …………………………………………………………………………………………………………………………