16

# **_Extrabudgetary Funds_**

64. We noted above that subnational governments have received a rapidly decreasing share over time of budget revenues in Belarus. Belarus has, however, made increasing use of the device of "earmarked" or "extrabudgetary" funds to finance critical governmental needs. While all taxes and contributions were equal to 50 percent of GDP in 1995, extrabudgetary funds amounted to 19 percent of GDP, or 38 percent of all taxes and contributions. Even more extraordinary, such earmarked funds are scheduled to increase to 56 percent of government receipts in 1996, so that more government revenues will accrue from off-budget than from on-budget sources !41 65. This extrabudgetary financing method has been adopted to support operating and maintenance costs of kindergartens and housing, which as we have seen are two of the principal social assets" of enterprises that are increasingly being divested to local governments. Two extrabudgetary funds were instituted in May 1992 and December 1993 for kindergartens and housing respectively. In the case of _Table 5: 1996_ **_Revenue Sharing in Belarus_** _Share of National_ **_Taxes Allocated to Central and Subnational_** _Budgets_

|Tax|_Central_<br>_Government_<br>_Budget (°/)_|_Local_<br>_Budget (°/)_|
|---|---|---|
|VAT<br>|_50_<br>|50<br>|
|Profit tax|60|40|
|Excise|70|30|
|<br>Personal Income Tax||100|
|Real Estate Tax|||
|*Central government property<br>|100||
|- Subnational Government<br>Proper||100|
|Severance Tax||100|
|Tax on Potassium and Rock Salt|50|50|
|Extraction|||
|Land Tax|||
|*Within cities|40|60|
|- Outside cities|25|75|
|Chernobyl Tax<br>|100<br>||
|State Duty|100||
|Fire Team Maintenance Duty|100||
|Duty on the right to use public<br>roads|100||

Source: Khankevich, "The Taxation System in the Republic of Belarus," p.<sup>3 9</sup> housing, 0.5 percent of enterprise revenues have to be devoted to maintenance of housing. If not spent directly by the enterprise, payment of an equivalent amount of enterprise revenues has to be made to the local executive councils for support of housing. The burden of this levy on the turnover of enterprises is substantial. Further, the required rate of earmarking revenue is arbitrary and has little to do with the costs of maintaining housing-complaints about the burden of this earmarked tax led to its rate being reduced from 1 percent of enterprise revenues in 1995 to 0.5 percent for 1996.

66. Funding for the operations and maintenance costs of local kindergartens is also promoted by an extrabudgetary fund, but one levied on after-tax profits. Local executive councils are permitted to raise this levy at a rate varying from 1 percent to 5 percent of the after-tax profits of enterprises. (Minsk City levies a 5 percent tax). Again, the tax is only collected if enterprises do not spend the specified amount directly on their own kindergartens. This source of financing obviously varies with the profitability of firms.

67. It is widely acknowledged that the use of extrabudgetary funds, or the "earmarking" of revenues for specified purposes, should be restricted to those instances where there is a strong benefit connection 41 All data in this paragraph are taken from Khankevich, "The Taxation System in the Republic of Belarus," p.11.