10 enterprises also build housing for their employees, for instance. Some of the new private enterprises are able to exploit possibilities for tax avoidance in non-taxation of certain types of income in ways that may be difficult for state-owned enterprises to emulate, however.<sup>28</sup> 36. It has been reported elsewhere that workers in some transition countries have opted for preservation of these nonmonetary benefits instead of receiving wage hikes; the bias in tax treatment described above may suffice to explain why. Great care has to be taken in giving tax incentives for some of these services, however, with housing being a pertinent example. Most citizens of Belarus pay nothing for rent in the sense of paying for the capital costs of housing, since the latter has been provided by enterprises or the state. The term that is frequently translated as rent-in Russian oplata za zhil'e-is simply a payment for routine operation (including all utility charges) and maintenance. This explains in large part why families in Belarus spend so little on housing in comparison to families in OECD countries. Rent and utilities accounted for only 4.4 percent of family expenditures in Belarus in 1995; less, it might be noted, than the share of family budgets spent on clothing (6.3 percent) or even alcohol and tobacco (4.9 percent).<sup>29</sup> By way of contrast, the median share of consumer expenditures on housing and utilities in 23 OECD countries recently surveyed was 19 percent (in Switzerland).30 The virtual exemption of such a large sector of the economy from the tax base in Belarus requires that tax rates be raised substantially on remaining activities to obtain given revenue goals and supplies a potent incentive to seek preferential tax treatment for other "worthy" activities. It might be objected, of course, that owner-occupied housing in many OECD economies is also known for receiving preferential tax treatment taking such forms as exemption of returns and the deductibility of debt-finance from income taxation. Recent research challenges the conventional wisdom that owner equity in housing is a lightly taxed asset in OECD countries, however.<sup>3</sup> ' 37. It is of interest that the Russian Government has recently acted to make fringe benefits taxable in calculation of the payroll tax base for social insurance programs. A decree issued in January 1996 expanded the payroll tax base in Russia to include non-wage worker compensation in the form of fringe benefits and payments in kind. The Government of Belarus might well consider following the example of the Russian Government in broadening the base subject to payroll taxation. The incentive to substitute nontaxable fringe benefits for money wages is even higher in Belarus than in Russia as a result of payroll tax burdens to finance social insurance and related programs. Such payroll taxes amount to 46 percent of wages in Belarus, as opposed to the 39 percent level applying in Russia.

38. While pressure to provide "tax expenditures," or favored tax treatment for particular activities exists in all economies, there are methods of controlling such pressure. "Base broadening" by elimination of tax incentives permits revenue goals to be obtained with lower overall tax rates, and has become synonymous with "tax reform" in many OECD economies in recent years. We saw above that reduction in overall tax rates leads to a reduction in demands for nontaxable fringe benefits. More selective incentives can also be substituted for blanket exemptions. An example might be to eliminate tax deductibility for enterprise expenditure on kindergartens but allow daycare expenditures to be deductible from personal income taxes paid by employees. Individuals might also be required to declare an extensive list of fringe

> 28 Because interest income is untaxed, for instance, it has been common practice for banks to pay their employees in part in interest income on deposits the banks contribute to accounts their employees' hold with them.

> 29 _Expenditures and Income of the Population in Belarus: 1995,_ Table 1. 1. Ministry of Statistics and Analysis, Republic of Belarus, Minsk 1996.

> **30** Charles Yuji Horioka, "Japan's Consumption and Saving in International Perspective," in _Economic Development and Cultural Change,_ vol. 42, no. 2, Jan., 1994, Table 4, p.<sup>3 04</sup> .

> **31** "...it is striking that, contrary to popular belief, these rates [effective tax rates for house purchase financed by equity] taking into account all relevant taxes are _not_ generally low compared to other assets, particularly in the case of zero inflation." OECD, _Taxation and Household Saving,_ (Paris: OECD, 1994), p. 110.