**Figure 7. Incidence of direct taxes by deciles**

<!-- Start of picture text --> 7 USD PPP % 10 16 USD PPP % 25<br>9<br>6 14<br>8 20<br>12<br>5 7<br>10<br>6 15<br>4<br>5 8<br>3<br>4 10<br>6<br>2 3<br>4<br>2 5<br>1 2<br>1<br>0 0 0 0<br>1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10<br>% of disposable income net of intervention (right axis) % of disposable income net of intervention (right axis)<br>USD PPP per day USD PPP per day<br>(a) personal income tax (b) social security contribution<br><!-- End of picture text --> <!-- Start of picture text --> (a) personal income tax<br><!-- End of picture text --> _Note_ . Deciles are ranked by disposable income before personal income tax (a) and social security contribution (b). _Source_ : own estimates based on HBS data.

This approach generated relevant estimates of payroll taxes. The total amount of estimated SPF contributions equaled to BYR 94.3 trillion, which is close to the actual amount of contributions in 2015 (BYR 95.3 trillion). Estimated contributions are distributed progressively in absolute and relative terms (see Figure 7b). A fall in the share of SPF contributions in disposable income before SPF taxation in the third decile is related to the significant share of pensioners in this stratum<sup>14</sup> .

# **3.3. Indirect taxes**

# _VAT_

VAT generates the largest volume of general government revenues. Most of the goods and services either domestically produced or imported are taxed at the rate of 20%. Hence, the share of VAT in consumer prices of these goods and services is 16.7%. A lower rate of 10% (corresponding to the share of 9.1% in consumer prices) is applied to agricultural and most of food products, as well as children goods. Exported goods are taxed at the rate of 0%. Furthermore, some services are exempt from VAT. The list of these services reduced substantially in the last decade, as the government strives to keep the tax base stable despite the economic recession. As of 2015, health care, education, and utilities services were exempted from VAT. VAT was similarly not applied to purchases and rent of real estate by households. The VAT exemption implies that providers of corresponding services have no VAT refunds, so they report VAT on inputs as costs, including them into basic prices. Hence, the effect of VAT taxation on consumer prices for these services depends on the share of intermediates in total production. Related estimates were accomplished within input-output tables after matching household expenditure lines with the industries from national accounts. Results of these estimations are presented in Table 3.

According to these estimates, the share of VAT in household consumption is equal to 11.7%, which corresponds to the ratio of general government VAT revenue to national final consumption (11.9%).<sup>15</sup> It reinforces the good approximation of obtained estimates of the VAT burden on households to actual VAT payments. Still, due to the discrepancy between consumption data of HBS and national accounts we may underestimate total volume of VAT payments by households. The estimated volume is BYR 37.7 trillion, which constitutes only 51.8% of total general government revenues from VAT. For instance, the share of household final consumption in total final consumption is 77.1%.

Our estimates show that this burden is evenly distributed among the population if measured as a share of disposable income (see Figure 8a). It can be attributed to the fact that the structure of household expenditures does not

> 14 77.1% of households in the third decile ranked by disposable income before payment of SPF contributions are households with at least one member aged above 60 years. Average share is 57%.

> 15 The ratio of estimated VAT payments of households to their disposable income is 8.8%. According to administrative data, collected VAT revenue is equal to 8.4% of national disposable income.

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