 In this session we will explore TASMOD in more detail and depth. I'll talk about the policies that are contained within TASMOD and in particular the definitional policies and the tax and benefit policies. Although in this session we will focus on the tax policies and in the next session we'll spend more time on the benefit policies. First of all it's important to look at the user interface again and here we can see it the policies are highlighted in the red circle here that's the actual names of the policies and the names of the policies relate to the output variables and we'll talk about that as we go. The description of the policies is in the comment column to the right and something called the spine which is the ordering of the policies which we'll also talk a bit more about as these sessions progress is on the left, far left, it's the actual row numbers the row numbers are the actual ordering of the policies. Let's just switch across to the actual model and look at that in a bit more detail. Okay so here's the model as launched we can open up TASMOD itself and here you are here are the actual policies and I'll give you an example of one of the here's the income tax policy one of the policies is called TIN underscore TZ and that's because and I won't go into details of the actual functions at this point but the output variable is TIN underscore S which is the income tax variable and that's why the policy is actually called TIN underscore TZ so here are the actual policies and they're if you like TASMOD names and here's a description of the policies in plain English under the comment column and the ordering of the policies is here one which is the up-rate policy through to the 18 which is an output policy okay go back to the presentation so the types of policy where we have definitional policies as you saw from the model itself the very first policy is an up-rating policy and this is an example of a definitional policy we'll go through the definitional policies in a while in more detail then a tax policy income tax I just showed you income tax good example of a tax policy and then there are benefits policies and an example of that is the PSSN policy so let's go through the definitional policies first of all up-rating factors when I showed you income concepts tax units constants expenditure variables these are special definitional policies that are required for two specific policies that's VAT and excise duty which we'll touch on only briefly in this training and then the final definitional policy is the output policy particularly the output policy at individual level now of these policies 1-4 will need annual alteration the up-rating factors are factors that contain the values by which income within the input data set is up-rated so clearly because of inflation these will go up on an annual basis so that's 1-4 the constants the values in the constants which I'll show you in a minute are things like the annual tax exemption rates and so forth and they do go up annually and so they will need annual alteration 2-6 that is the definitional policy relating to income concepts and 6 which is the output policy may need an amendment if a new benefit or tax is introduced 3 which is the tax units or sometimes called assessment units will rarely need amendment and 5 the expenditure variable definitional policies will only need amendment when a new data set is introduced into the model now we'll go through some of these key definitional policies in a bit more detail and I will show you them within the model as we do that so up-rating this policy inflates the values in the input data set bringing them up to date and is used in conjunction with the up-rating indices country tool and I'll show you that in just one second so for example the underpinning data set for Tasmod is currently 2012 and therefore for 2015 all values need to be adjusted for inflation and the default inflator is the CPI but other specific inflators can be specified for particular values so for example earnings in the input data set could be inflated by the annual change in average earnings if we have that information so now I'm going to just flip across to the model itself and then talk a bit more about the up-rating now I mentioned the up-rating indices if you go to the tab country tools the default tab is countries but if you move to countries tools there are many options in country tools but the up-rating indices is one of the most important ones so having navigated to country tools we can click up-rating indices and within up-rating indices you can immediately see that there are six different indices that have been inserted they're given names dollar F underscore means that they're factors, inflator factors and there's first of all one for the overall CPI and then because we undertake VAT and excise duties on some of the expenditure items we have special factors for inflating expenditure and they're subsets of the overall CPI so we have a CPI food, CPI non-food and because of excise duties on alcohol, tobacco and fuel we have a CPI alcohol, tobacco and fuel now all of these CPIs the CPI and all its components I should say was actually rebased in December 2015 which equals 100 and so for the earlier years 2011, 12, 13, 14 and even 15 because 15 is represented by June 2015 the actual inflator is less than 100 and if I can then close that take you back to the model itself and unpick the up-rate definitional policy you'll see that it has several elements to it first of all the function, Fx is a function we'll talk about those constantly throughout this training the up-rate policy has only one function called up-rate and that has a number of so-called parameters and there are in this case five parameters the first parameter specifies the dataset and in the case of Tasman we've only got one dataset and that's TZ underscore 2012 data that's what it's called and that represents the 2012 HBS as prepared as an input dataset then there's the default factor which is the overall CPI and that's used for anything that isn't specified separately in fact we do specify a factor for YEM which is Employment Income and YSE which is Self-Employment Income but because for Tanzania we haven't got a specific wage inflator we simply use the CPI, overall CPI for those two ok I'll close up that and then take us back to the presentation ok the next definitional policy is Constance I mentioned before Constance are things that sometimes change annually and in the Constance for TASMOD we have got for example the presumptive tax upper limit which is 20 million shillings per year in fact that hasn't changed year on year it's been 20 million since in 2012 and also in 2015 but it could have been changed and the easy place to store it is in a constant similarly different elements of the productive social security system the PSSN are actually itemised here so we've got the basic cash transfer amounts for the child 2000 per month for the adult and then there's the variable conditional cash transfer amounts and caps all of which will become clear when we go through the different elements of the PSSN similarly we've got in here the excise duties for beer, wine etc again if I go across to the model we can actually look again at the actual Constance all of them and there are more as you can see which was illustrated in the screenshot in the presentation and in fact we can add to this because there are other things within the model itself like the tax bans for example when we model income tax which are actually still within the actual tax policy itself but they could be removed into the Constance policy and in fact one of the exercises we're going to get you to do is actually moving some of the tax thresholds into Constance income lists now there are many different income concepts required when you simulate taxes and benefits and the handy thing about income lists is that they're a way of listing together the income components included in a particular definition of income and they as it were create a new variable which is a composite of the different elements within the list within the income list and we use income lists within TASMOD quite a lot we use it for computing income for taxes direct taxes like income tax but also for VAT and purposes as well so the policy with the ildef underscore TZ specifies which income components relate to each income concept or income list this is a policy that's not usually amended very often because for example the elements of income that are taxable through the income tax system are fairly constant over time but if they did vary you'd need to vary the income lists so again I'll go across to the model itself close up the Constance we were just looking at and rather look at the income lists so we have income lists for taxable income used in the PAYE system which includes YEM and but there's a deduction of allowances for NHIF employee contributions so plus means something that's added to the income list il underscore taxably minus means it's subtracted so because the contributions by the employee to the NHIF are actually deductible for income tax purposes they're shown as a minus okay and then there are lots of other standard income lists as well as income lists for specific purposes again when we explore the model in detail we will go through those but it's just to show you what an income list might look like so well let me just show you original income it has a lot of different income elements that are all added together which includes both employment income other income income from property income from land self-employment income income from agriculture income from private transfers they're all added together in income list il's underscore origy okay I think that's all to say about income tax sorry income lists for the time being they are very complex and can be looked at in more detail when we go through the model okay this is a screenshot of what I've just been showing you tax units are groups of people for example individual couple family household and the tax units policy determines who is included in a particular tax unit and the tax unit themselves are have to be specified in each policy so personal income tax for example is calculated at the individual level so the tax unit individual has to be included on the other hand the productive social safety net fixed basic cash transfer depends on households being below the food poverty line which is a household level function so each tax unit can be defined in various ways and it's described in the policy tudef underscore tz and again this is a policy that's very rarely amended okay so can I just go and show you the tax unit definitions in fact the ones that are used in Tasmod are the household take a tax unit household underscore tz the individual and the couple the tax unit family which we have defined is actually not used in any current policies now we'll move on from having looked at the definitional policies to look at the actual tax policies there's income tax, value added tax and excise duties these can be extremely complex and only likely to need amendment if for example one's testing out new ways of financing social benefits or that the rules the tax rules have been changed by the revenue authority and this does happen but it doesn't happen all the time on a regular basis so I think it would be good therefore to have a quick look at the tax policies again we can walk through these in more detail when we go through the model but the tax policies are as follows there's presumptive tax and presumptive income tax is actually what we might call a turnover tax it's a tax that's payable on people operating small businesses under 20 million shillings per annum turnover and they are not required to keep accounts and what they pay this so called productive tax on is their turnover that it's not the net profit which is what tax is normally payable on if you do keep accounts and it's much easier to capture income from informal traders for example through presumptive tax the rates are much lower because obviously it's not on profit it's on absolute turnover the rates are much lower than they would be for larger enterprises where accounts are kept or for PAYE for example so the eligibility criteria are that the individuals must have a turnover from self employment a business that is less than the upper limit which I've said is 20 million and must not be engaged in employment or agricultural activity so we have a condition there that specifies that and then the taxation of the turnover has a fairly low rates like 3% 3.75% 4.5% rising to 5.25% depending on what level the turnover is at so that's the turnover tax and then we have a more complicated income tax the income tax we start with having two temporary or intermediate variables one for PAYE people i.e. people who are employees in the formal sector and then we have something called I underscore accounts which is an intermediate variable for self employed people who keep accounts i.e. not the people who pay turnover tax then what we do then is calculate the amount of income which is taxable but we only take into account people in the formal sector so again we can go through this but the condition here is that the IFO which is in formal excuse me LFO which is a labour market variable which has a value of 1 if somebody is in the formal sector and 0 if they're not in the formal sector so if they're in the formal sector then the income taken into account is that in the income list taxably which we looked at above which is actually YEM minus NHIF contribution and that goes into an output variable I underscore PAYE which is the amount that those individuals pay tax on then there's a another calculation this time to capture the people who are self employed but are above the presumptive tax upper limit these are people who have got a turnover of greater than the upper limit or that their YEM that's their employment is greater than 0 and they do have self employment income because remember even if you're below the presumptive upper limit if you're in earner's employment or in agriculture this is the second one then you are obliged to be taxed using the accounts tax system and here YSE is the input variable which is the net profit rather than the turnover which was the input variable for the turnover tax and then the output variable it's an intermediate variable I accounts which we defined at the beginning here and that will come into taxation then finally the actual income that comes into the normal taxation is the PAY income plus the accounts income plus EEL underscore taxably 2 which we didn't go through in the income list but which is in fact income from agriculture and other income let's have a look at EEL taxably 2 which I think is here so it's other income income from property income from land and income from agriculture as I suspected so all of that comes together and goes into the tax base variable ttb underscore S and then it's the tax base into a variable on which the different tax bands are applied to calculate the income tax tin underscore S again we can go over this in more detail in class I'm not going to talk about tax as duty because it's particularly complex or but that is again something we can spend some extra time about in class right back to the presentation so just a brief word about the benefit policies this is the social transfers and the eligibility for public works program there are four benefits programs currently simulated in Tasmod there's the fixed basic cash transfer they're all prefixed by pssn for the productive social safety net so there's a fixed basic cash transfer the variable conditional cash transfer then there's a policy on cash transfer total because as you'll see there's a monthly amount over which if someone's eligible to both the fixed basic cash transfer and the variable conditional cash transfer those two amounts together can only come to a certain total I think it's offhand 19,000 shillings a month and that's a cap and we do that by having a separate transfer for that and then finally there's an eligibility for public works programs and as I've indicated earlier these will be covered in more detail in a future session okay I've mentioned briefly the spine but the spine is the list of policies simulated by Tasmod and the order in which they are simulated so each policy is numbered and ordered in the main window and I've shown you that it's included in order and it's imperative for example that policies which depend on information generated by an earlier policy are positioned after that policy and that's really quite an important one so let's go back to the model again okay so this is the spine order and if for example um I think this may be a case in point um yes it is if we look at the eligibility for public works the eligibility condition for public works is that BSA underscore S is greater than zero and BSA underscore S is actually the fixed basic cash transfer output variable so the eligibility for public works has to come at point 14 after point 11 which is the fixed basic cash transfer I hope that's clear now let me go back to the presentation well in fact that completes the presentation because now we'll spend time exploring the model identifying different types of policy and becoming very familiar with the definitional policies which form the basic framework of the model