now also do not include social contributions tax, and only the personal income tax is added to the disposable income to get market income.

We calculate the consumable income as disposable income plus imputed indirect subsidies minus estimated indirect taxes. Further adding imputed in-kind transfers leads to final income. Detailed principles of estimation and imputation of related transfers and taxes are discussed in the next section.

# **Figure 6. Construction of income concepts**

<!-- Start of picture text --> Final income<br>(education and healthcare + in kind transfers + indirect subsidies – direct transfers (cash and in kind benefits,<br>public expenditures) (utility subsidy and transport subsidy)<br>pensions* )<br>Disposable income<br>Consumable income (total cash expenditures + net in Market income<br>kind income + in kind benefits)<br>– indirect taxes + direct taxes (PIT and<br>(VAT, excises, and import duties) SPF contributions* )<br><!-- End of picture text --> _Note_ . * Pensions and SPF contributions are included into direct transfers and taxes respectively only within PGT approach. _Source_ : own elaboration.

# **3.2. Direct taxes**

Taxed paid directly by people are personal income tax (PIT), property taxes, and taxes paid by entrepreneurs. The HBS data do not contain explicit information on these taxes. Household expenditures on _property taxes_ are included in the line “taxes and insurances” that feature expenditures on property tax payments, as well as on medical, life, auto insurance, stamp duties, fines, membership fees, and other. There is no feasible way to separate property taxes from other payments. Moreover, the role of these expenditures in the households’ welfare is marginal. On average, “taxes and insurances” constituted only 0.8% of the disposable income of households in 2015. The role of these expenditures increases with income. The richest decile spent 0.9% of their disposable income on “taxes and insurances” in 2015, the poorest decile - 0.6%. Hence, it may signal something about the progressivity of property taxes if one assumes that they are distributed the same way as total expenditures on “taxes and insurances”. However, the situation may have changed in 2016, as some privileges on property tax for old-age people were abolished. Still, these taxes play a limited role both in fiscal policy and households’ welfare, and ignoring them would not affect conclusions about overall impact of fiscal policy on poverty and inequality in Belarus.

# _Personal income tax and taxes on entrepreneurial income_

_Personal income tax_ (PIT) is paid from employment and related income at the flat rate of 13%. The HBS data present information on net income, implying that gross income and PIT payments should be estimated. We assumed that PIT is paid only from employment income. The HBS contains also information on income from sales of agricultural products, receipts from personal property and real estate sale, on dividends and rental income. However, they are fully (income from sales of agricultural products) or partly exempt from PIT. In order to simplify estimation, and due to the absence of information needed to make reliable assumptions on which part of income was taxed, we considered that all these lines of income are not subject to PIT.

Employment related income presented in HBS files at the household level contains information on self-employment income. This income was subtracted as entrepreneurs enjoy a special tax regime (see below).

PIT legislation provides various deductions from the tax base aimed at reducing the tax burden on vulnerable groups – low income deduction, deduction for parents of children below the age of 18, on spouse in maternal/paternal leave, on children above the age of 18 who are continuing education. We took into account deductions on children below 18, equaled to BYR 210,000 per month for one child and 410,000 for two or more children, and the low income deduction of 730,000 for persons with incomes less than 4,420,000 per month. As there is no information on relations between household members, we assigned deductions on children to all employed members of the household with children.

12