A tax on unemployed would bump official unemployment rate up to 20%

The government plans to tax the unemployed, but has yet to develop the mechanism. About 150,000 people in each of Belarus’ six regions might become subject to this tax. In some eastern regions, where labour migration is high, the tax might affect every fourth family. If the tax is introduced, Belarus’ official unemployment rate will lurch from 0.5% to 20%.

The government’s proposal to tax the unemployed was postponed for implementation indefinitely. This initiative was not included either in the draft 2014 budget, or in the draft amendments to the Tax Code. Nevertheless, the Finance Ministry recently said that it was preparing a draft regulation that envisaged taxing the unemployed who benefit from social services. They would have to pay circa $260 per annum to the state budget.

The regulation has not been adopted due to pure technicalities: there is no clear mechanism how to collect taxes from officially unemployed persons who do not have a legal income.

Formally, the law that foresees taxing the unemployed could be applied to about 1 million citizens. Official data estimates that about half a million Belarusians have stable income from abroad or work illegally. However, the real situation might be even more complex. According to our estimates, in the Gomel region alone, the number of immigrant workers could be more than 200,000 people.

Meanwhile, Belarusians are actively discussing how they could avoid paying tax on unemployed. If the government starts taxing the unemployed, the official unemployment rate may rise to 20%, which would be a bad move in the view of presidential elections. Therefore, the government may introduce this tax only if there is an emergency with replenishing the state budget.