Table 4. Progressivity of indirect taxes<sup>1/</sup>

||Disposable in<br>|come and<br>(in|concentra<br>%)<br>|tion share<br>|s<br>|Cumulati<br>|ve disposab<br>sh|le income<br>ares(in %)<br>|and concen<br>|tration<br>|
|---|---|---|---|---|---|---|---|---|---|---|
|Decile|Disposable<br>income|VAT|Excise<br>tax|Fuel<br>levy|Indirect<br>taxes|Disposable<br>income|VAT|Excise<br>tax|Fuel<br>levy|Indirect<br>taxes|
|1|0.54%|0.47%|3.44%|0.39%|0.68%|0.54%|0.47%|3.44%|0.39%|0.68%|
|2|1.00%|0.88%|3.52%|0.75%|1.05%|1.54%|1.35%|6.97%|1.14%|1.73%|
|3|1.38%|1.22%|3.76%|1.04%|1.38%|2.92%|2.57%|10.73%|2.19%|3.11%|
|4|1.86%|1.67%|4.65%|1.41%|1.84%|4.78%|4.24%|15.38%|3.60%|4.95%|
|5|2.54%|2.31%|5.83%|1.88%|2.49%|7.32%|6.55%|21.20%|5.48%|7.44%|
|6|3.62%|3.28%|7.79%|3.04%|3.57%|10.94%|9.83%|29.00%|8.52%|11.01%|
|7|5.45%|4.99%|10.15%|5.10%|5.40%|16.39%|14.82%|39.15%|13.63%|16.42%|
|8|9.09%|8.42%|13.30%|9.15%|8.94%|25.49%|23.24%|52.46%|22.77%|25.36%|
|9|17.86%|17.20%|18.34%|19.24%|17.72%|43.34%|40.44%|70.79%|42.02%|43.08%|
|10|56.66%|59.56%|29.21%|57.98%|56.92%|100.00%|100.00%|100.00%|100.00%|100.00%|
|Source:<br>1/ The|Own calculatio<br>distribution of|ns based o<br>disposable|n IES 2010<br>income and|/11.<br>tax concen|tration shares|for the populatio|n are ordere|d by disposa|ble income|deciles.|

The slightly regressive nature of indirect taxes is most clearly seen in the fact that the poorest 40 percent of income distribution accounted for 4.78 percent of the total income distribution but paid 4.95 percent of total indirect tax collections, while the richest 20 percent of the income distribution paid three-quarters of the total revenue indirect tax collections when their share in total disposable income was about 741⁄2 percent.<sup>41</sup> Figure 8A shows that the share of disposable income paid in VAT increases from just under 9.5 percent of the disposable income of the poorest decile to almost 12 percent of the disposable income of the richest decile. However, excise taxes on alcohol and tobacco tend to make up a higher share of the disposable income of the poorer deciles. The poorest decile pays about 4.3 percent of disposable income in such excises compared to 0.6 <!-- Start of picture text --> Figure 8. Incidence of indirect taxes 1/<br>(Indirect taxes as a share of disposable income)<br>8.A. South Africa 8.B Middle-income countries<br>18% 20% 16%<br>16% 18% 14%<br>16%<br>14% 12%<br>14%<br>12% 12% 10%<br>10% 10% 8%<br>8% 8% 6%<br>6%<br>6% 4%<br>4%<br>4% 2% 2%<br>2% 0% 0%<br>0%<br>Poorest decile Richest decile Share of GDP<br>VAT Excise Tax Fuel levy<br>Share of GDP<br>Share of disposable income Share of disposable income<br><!-- End of picture text --> Sources: Bolivia (Paz et al, 2014), Brazil (Higgins and Pereira, 2014), Indonesia (Jellema et al, forthcoming), Mexico (Scott, 2014), and own estimates for South Africa based on IES 2010/11. Note that deciles are ranked by market income 1/ Note that in this figure, households are ranked by market income (instead of disposable income) for comparison purposes. The results in Figure 7 and Table 4, however, are with households ranked by disposable income for reasons explained in the text.

> 41 Disposable income includes FBS as a form of a transfer. When FBS are treated as an indirect subsidy and therefore excluded from disposable income, the share of the top two deciles in disposable income is 75.1 percent.

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