Secondary 856.0 1 086.3 78.8 1.9 2.0 Note: Own elaboration. Survey estimates correspond to authors’ simulation of the fiscal incidence model; for indirect taxes, survey estimates correspond to tax collected from West Bank since the PA only collects taxes in this region. For transfers, survey estimates include both West Bank and Gaza since the PA distributes public expenditure in both regions. Fuel excise numbers are sourced from Ministry of Finance monthly reports, Personal Income Tax numbers are sourced from the Income Tax Department of the Ministry of Finance, while pension contribution estimates are from 2014 and imputed based on information on number of each scheme’s number of active contributors, average wage, and rate, sourced from the World Bank (2016).

* Bifurcated amount of government spending/allocation for fuel subsidy is not available. IMF estimates (2017) for the fuel subsidies indicates an amount of NIS 251 million which includes both implicit and explicit subsidies and is therefore larger than the estimate of total indirect subsidies discussed elsewhere in the report.

*** Bifurcated amount of government spending/allocation for domestic electricity subsidy is not available. The closest estimate of the size of the implicit and explicit subsidy is from 2015. This includes direct and indirect effects, however, and so our estimate is expected to be substantially smaller given that it only includes domestic subsidies.

# **9.2 Limitations**

## **9.2.1 Direct taxes and pension contributions**

## **Personal Income Tax (PIT)**

**The main challenge in modeling the PIT was the complexity involved.** Two different tax systems were modeled depending on region and worker status, and each with numerous tax exemptions and deductions. In both systems, information on the order and size of the deductions and exemptions was lacking.

**The PECS 2016/17 also does not specify whether income data is net or gross.** It was assumed that employees would provide their income net of tax, while employers or self-employed workers would be more likely to report their gross income.

A description of the detailed challenges faced for each deduction can be found in Annex B.

## **Pension contributions**

**The latest administrative numbers available on pension income and contributions are a few years out of date, from December 2013 and September 2014.** There were also a number of different schemes which made it complex to understand and implement.

## **Property tax**

**The main limitation for the estimation of the property tax is that there were several pieces of information that were not available in the PECS 2016/17 dataset, including:**

- (i) The area of the building and number of floors. This would be used to estimate the annual rental value of the building.

- (ii) The lease contract information. Having this information would be useful because the value of the tax varies with occupancy status (rented; prepared for rent; inhabited by the owner). To overcome this limitation, the modeling has proceeded with the assumption that all the properties are inhabited by the owners themselves.

- (iii) For Land evaluation, in lieu of the missing survey data, administrative data (by city) on evaluation was used and it was assumed that the valuation value is “average value per property” and not “per square meter”. Due to the lack of update in the evaluation, the evaluation amounts for some

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