Rates of sales taxation are taken directly from the statutory rate schedule.<sup>32</sup> Rates of subsidization for energy products are taken from the Ministry of Petroleum and the World Bank (2017). When applied to purchases recorded in the HIECS, cumulative totals of energy subsidies and sales taxes (on goods) allocated in HIECS reach 34 percent, 42 percent, or 56 percent of the _scaled-down_ budget totals for those items, where the scaled-down budget totals are created by multiplying actual budget totals by the ratio of cumulative household consumption expenditure in HIECS to cumulative final household consumption expenditure in the national accounts.

Energy subsidies are also available to firms and industries using energy goods and services as inputs into production; other production inputs may attract sales taxes. Lower or higher input prices that result from subsidies or taxes, respectively, may be passed on to final prices for goods and services created using the subsidized or taxed inputs. This study estimates these indirect effects of energy subsidies and the sales tax regime and includes the indirect benefit (or burden) via the same imputation procedure based on consumption expenditure records described above.<sup>33</sup>

# **Excise taxes**

The GST was in effect in FY15 and includes provisions for the taxing of goods and services with a standard tax rate of 10 percent.<sup>34</sup> Certain commodities were taxed at 5 percent, and selected services were taxed at 5 percent or 15 percent. Some particular commodities are exempted from the GST, and others are assigned a special tax rate. For the purposes of this exercise, we refer to excise taxes as those goods assigned a special tax rate according to the table 1 of GST law. Goods included in this category are tea, sugar, beer, tobacco, and petroleum products (gasoline, kerosene, and so forth).<sup>35</sup> The CEQ exercise covers only a subset of these as the HIECS provided limited information for mapping them to households’ expenditures (diesel, lubricating oils) or the products could not be identified in the data (wheelchairs and so on).

We include the following products as part of the estimation of excise taxes: tea (with a differential tax for that distributed by ration cards or not), sugar (with a differential tax for that distributed by ration cards or

> 32 Note that by applying _statutory_ rather than _effective_ sales tax rates to purchases recorded in the HIECS 2015, this CEQ assessment does not take a stance on indirect tax evasion or, for example, actual rates of taxation in informal markets.

> 33 This study follows the methodology developed in the _Commitment to Equity Handbook_ (Lustig 2018), chapter 7, to allocate the _indirect impact_ of indirect taxes on the prices of goods and services acquired in the private market. The handbook suggests solving a price‐shifting model—with an input‐output matrix as the empirical description of price determination in the production side of the economy—assuming _inelastic_ demand for all goods and services and fixed technologies of production. That is, producers “push” any input taxes paid (subsidies received) onto the final price of the goods and services, thereby raising prices (lowering prices) relative to a no‐tax (no subsidy) counterfactual.

> 34 Law No 11 of 1991 and subsequent amendments.

> 35 Other items listed in the law are automatic wheel chairs, artificial human organs, vegetable oils, and hydraulic cement.

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