paid by employee), (ii) a defined contribution component (3 percent paid by both the employer and employee), and (iii) a lump sum “welfare” payment of 700 NIS.<sup>38</sup> For pension contributors that are tax resident in Israel (5,750 pension contributors), a rate of 5.5 percent is applied for workers, and 12 percent for employers.

# **4.2 Direct transfers**

**The PECS 2016/2017 directly identifies cash transfers and near-cash**<sup>**39**</sup> **transfers from social protection.** The survey disaggregates transfers households received from the government (cash vs in-kind) but does not differentiate between types of cash transfer received. The unconditional Cash Transfer Program (CTP) was the main government-funded social protection program in 2016-17, covering households in both the West Bank and Gaza and representing about 63 percent of the Ministry of Social Development’s (MoSD) total budget.<sup>40</sup> According to MoSD’s 2017 Annual Statistical Report, CTP provided benefits to roughly 110,000 households in 2017 (72,000 in Gaza and 38,000 in the West Bank), constituting 687,000 individuals (493,000 in Gaza and 195,000 in the West Bank).  The CTP identifies beneficiaries using a Proxy Means Test Formula (PMTF), which sorts households into categories relative to the extreme and national poverty lines. The exact PMT formula and threshold being used by the government to identify beneficiaries of the CTP was not available for inclusion in the model, and we approximated coverage through a combination of the location of the household and the average monthly transfer amounts to match the administrative data. For the social protection in-kind transfers, all households reported as receiving this transfer from the government have been directly identified and included.

# **4.3 Direct taxes**

## _4.3.1 Personal income tax (PIT)_

**As with the pension contributions, rates for the West Bank and Gaza are applied to those working in the West Bank and Gaza and subject to tax by the PA (in Gaza this includes only PA employees), and Israeli income tax rates are applied to the West Bank and Gaza population working in East Jerusalem, Israel, or the settlements.** Personal Income Taxes paid are simulated by applying statutory rates to formal, tax-liable workers’ self-reported income). Formal workers are restricted to workers of working age, not an unregistered refugee, and that report making pension contributions on their behalf. They are treated as tax liable if they are tax resident in the West Bank and Gaza or Israel (i.e., not working abroad or for a foreign government) and exempt if they have a disability that has a difficulty level of 50 percent of more. The simulation is effective – 109,200 taxpayers are identified in the survey compared to 112,500 in the administrative data.

**Taxable income:** For employees, income is assumed to be net of tax while for employers and selfemployed workers it is assumed to be gross of tax. We observe income in the survey from wages and

> 38 The modeling proceeds under the assumption that the payment is annual.

> 39 Note that while these are described in the PECS 2016/2017 as in-kind transfers, in this assessment they are referred to as near-cash transfers. This is in keeping with CEQ terminology which distinguishes between in-kind transfers such as public health and education services - which are valued at an average cost of provision - and near-cash transfers, such as school feeding or fertilizer - which are valued according to the change in a households’ purchasing power due to the receipt of a good or service.

> 40 The total amount transferred to households through the CTP in 2017 was 518.4 billion NIS in 2017.

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