Taxation and Gender Equity

A Comparative Analysis of Direct and Indirect Taxes in Developing and Developed Countries

Caren Grown, Imraan Valodia, Caren Grown, Imraan Valodia

• Publisher: Routledge
• Year: 2010
• ISBN:
  9781136980244
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Around the world, there are concerns that many tax codes are biased against women, and that contemporary tax reforms tend to increase the incidence of taxation on the poorest women while failing to generate enough revenue to fund the programs needed to improve these women's lives. Because taxes are the key source of revenue governments themselves raise, understanding the nature and composition of taxation and current tax reform efforts is key to reducing poverty, providing sufficient revenue for public expenditure, and achieving social justice.

This is the first book to systematically examine gender and taxation within and across countries at different levels of development. It presents original research on the gender dimensions of personal income taxes, and value-added, excise, and fuel taxes in Argentina, Ghana, India, Mexico, Morocco, South Africa, Uganda and the United Kingdom. This book will be of interest to postgraduates and researchers studying Public Finance, International Economics, Development Studies, Gender Studies, and International Relations, among other disciplines.

1
Taxation and gender equality

A conceptual framework

Caren Grown

Introduction

Governments everywhere grapple with the problem of generating enough resources to reduce poverty and fund essential public services. Fiscal policy, including taxation, is at the heart of the debate on which services government should provide and who should pay for them, including the share paid by men and women as consumers, workers, and employers. The global financial crisis of 2008–09 has thrown millions of people into poverty worldwide, highlighting the need for stronger, more equitable and efficient tax systems that can ensure a stable flow of public services, even during periods of downturn.

Over the decades, many countries have embarked on extensive reforms of their tax systems, with some achieving lasting improvements and others managing only short-term or transitional improvements that are gradually undone. Since the 1990s, several trends have been seen worldwide. These include reforms to personal income tax systems to broaden their bases and reduce the highest marginal tax rates, reduction of the highest corporate income tax rates, increasing reliance on broad-based value-added taxes (VATs), and reduced reliance on trade taxes through a flattening of the tax structure and removal of discrimination against imported goods in both indirect and trade taxes (Bahl and Bird 2008). Countries have sought to make up revenue losses from declining trade taxes, in particular, through a shift to indirect taxes, especially the VAT. More than 125 countries now have some form of a VAT, and it is the mainstay of revenue systems in much of the world (Bird 2005).

One of the cornerstones of tax policy, and central to tax reform efforts, is the issue of equity, along with issues of efficiency and ease of administration. A key challenge facing developing countries is to be able to generate sufficient public resources in a way that does not place an undue burden on the poor and marginalized. Since women are particularly vulnerable to poverty, systematic and robust assessments of the manner in which developing countries are attempting to increase their revenue pool and the impact of this on poor women are urgently needed.

To date, however, neither the tax literature nor public debates have adequately addressed how gender-based differences in behaviour affect tax equity considerations and outcomes. For example, an assessment of the effect of consumption taxes on patterns of regressivity, which ignore the fact that men and women have systematically different expenditure patterns, will fail to capture the differential effect of these reforms on different types of households – single parent versus dual-earner parent – across the income distribution.

This book is the result of a two-and-a-half-year project which examined the gender dimensions of tax policies and tax reforms in eight countries: Argentina, Mexico, South Africa, Ghana, Uganda, Morocco, India and the United Kingdom. Like other studies, this volume is concerned with who contributes the greatest share of their income in taxes. But the work in this volume broadens the understanding of equity in taxation to include gender differences as a core element in defining notions of tax equity and outcomes. Because women are more likely than men to be poor, understanding where gender inequities are of greatest concern necessarily involves analysis by income and hence a specific focus on gender inequalities among the poor.

The book makes several unique contributions. To evaluate gender equality in taxation, we first develop a conceptual framework based on the Convention for the Elimination of All Forms of Discrimination Against Women (CEDAW) and principles used in the economics literature on taxation. Second, we develop a consistent empirical methodology to analyse on which households – categorized by selected gender attributes – the incidence of selected indirect taxes is highest. We apply this methodology to recent household-level data from the eight countries. Third, the focus on developing countries (seven out of eight countries in our sample) is unique, as virtually nothing has been written on the gender impacts of taxation in these countries. Finally, based on our conceptual framework and our empirical findings, we develop a set of principles for evaluating the gender equity aspects of tax policy that we hope will influence real-world tax policy design and implementation.

Tax concepts and issues: a brief summary

A frequently used summary measure of taxation, for purposes of international comparison, is the ratio of total tax revenue to Gross Domestic Product (GDP). A high tax/GDP ratio has also been used by feminist economists as an indicator of resources that are available for expenditure that promotes poverty reduction and gender equality. This ratio varies widely among both developed and developing countries. Overall, as countries develop, they tend to be able to generate greater revenue relative to GDP. Fox and Gurley (2005) use data from 165 countries and report that tax ratios range from well under 10 per cent in several countries, most of which are small and low-income (such as Myanmar, Nepal, Guatemala, Haiti, Niger, Chad and the Central African Republic), to well over 40 per cent in many countries, mostly in Western Europe (The Netherlands, Denmark, Italy, France and Sweden). But these patterns are not uniform, and even among countries at a similar level of income, there can be considerable variation in revenue yields. For instance, some lower-income countries, such as the Democratic Republic of Congo, Sudan, Ukraine, and Belarus, also had high tax ratios. Similarly, some higher-income countries, such as the United States, had notably lower tax ratios than others in that group. A low tax/GDP ratio may reflect an inadequate tax system and/or weak tax administration, or there may be other substantial non-tax sources of income, such as petroleum in Nigeria. Alternatively, it may be the result of conscious policy such as in South Africa where a national tax/GDP target was set in 1996 at no more than 25 per cent, or the United States, where it reflects a conscious effort in recent decades to reduce taxes on high-income earners.

The countries in this volume also have widely varying tax revenue to GDP ratios, from 9–15 per cent in Mexico, Uganda and India, to 20 per cent in Ghana, and Morocco, to 27–28 per cent in Argentina and South Africa, and, finally, to 36 per cent in the United Kingdom.

All tax systems – in both developed and developing countries – include the same basic tax categories: direct taxes on income and wealth; indirect taxes on consumption; property taxes; and trade taxes. The most common direct taxes are the personal income tax, the corporate income tax, and wealth or inheritance taxes. The most common indirect taxes are the value-added tax (VAT) and selected sales and excise taxes (e.g., taxes on alcohol and cigarettes). Property taxes tend to be imposed on real estate such as land and housing, or on personal property such as cars and boats. Trade taxes often take the form of import or export duties. This volume, rather than focusing on all types of taxes, concentrates on personal income tax, the VAT, selected excises and fuel levies, which can together be considered the basic ‘pillars’ of taxation in most countries (Barreix and Roca 2007).

While all countries generate tax revenue from broadly the same sources, the tax system of each country reflects its specific history, legal tradition, political structure and economic base (Bahl and Bird 2008). The structure of tax revenue also varies with the level of national income. Across low-income countries, about two-thirds of tax revenue is raised through indirect taxes. In contrast, across high-income countries, indirect taxes account for only about one-third of tax revenue, with the remaining two-thirds coming from direct taxes. In low-income countries, personal income tax accounts for just over a quarter of tax revenue, while in high-income countries, it accounts for over a third of tax revenue.

The countries in this volume generally reflect this pattern but with some individual variation. In 2006–08, as a share of total tax revenue, personal income tax (PIT) represented between 14 and 21 per cent in Argentina, India, Morocco and Uganda. The percentage was substantially higher in the United Kingdom at 27 per cent, although Mexico and South Africa, much poorer countries, had a high share of PIT in total tax revenue, at 56.4 and 30 per cent, respectively, in 2007.¹ The share of VAT in total tax revenue varied from 15 to 18 per cent in Uganda, Ghana,² and the United Kingdom, and was about ten percentage points higher in Argentina, Morocco and South Africa, and 46 per cent for Mexico.³

Gender differences that affect taxation

It is important to clarify upfront our use of the term ‘gender’ throughout this volume. Average differences between men and women observed in economic, social and political life are not the result of sex (e.g., biology) but rather are the result of social relations that ascribe different roles, rights, responsibilities and obligations to males and females.⁴ The structures that govern gendered social relations have basic commonalities across different societies, although how they are manifest in specific beliefs, norms, organizations, behaviours and practices can and do vary.

Gender analysis involves examining the inequalities between women and men that result from social power relations in households, markets, and organizations. Social power relations are based not only on gender but also arise from class, race, ethnicity, caste, and location (e.g., urban or rural), which again vary across societies. Gender is a social stratifier that interacts with these other powerful social stratifiers. When analyzing the distributional impact of tax systems, it is therefore important to go beyond a mere focus on women as a distinct group in relation to men as a distinct group and to incorporate all relevant social stratifiers. Several of the chapters in this volume therefore include income, race and location as stratifiers in the gender analysis of taxation.

Barnett and Grown (2004) note four ‘stylized facts’ about gender differences in economic activity that should be used to understand the impact of taxation on men and women. These are:

1 gender differences in paid employment – including formal/informal employment, wages and occupational segregation;

2 women’s work in the unpaid care economy;

3 gender differences in consumption expenditure;

4 gender differences in property rights and asset ownership.

Gender differences in employment

In all countries, women’s labour force participation rates are lower than men’s, although women contribute more time in total to paid and unpaid work (United Nations Development Programme 1995; United Nations Development Fund for Women 2000; United Nations 2009). Within paid employment, several gender differences are important to note in a gender analysis of taxation. First, women enter and exit the labour force more frequently than do men, which means their participation is more discontinuous than is men’s, and they are more likely to be in part-time and seasonal jobs, while men are concentrated more than women in full-time positions (International Labour Organization 2009b). Second, women earn less than men, even after controlling for standard human capital variables (age, education, job experience), though the gap has narrowed in some countries, over the last decade (Tzannatos 1999; Artecona and Cunningham 2002; Oostendorp 2004; International Labour Organization 2009a). Third, in many countries, especially developing countries, women work predominately in informal employment which in many cases puts them outside the income tax net either because they earn too little to file returns or choose not to do so knowing that the tax system has few ways to track their income, which may not otherwise be reported. Informal employment includes market-oriented employment in small workshops, family businesses, contract or subcontract work often undertaken in the home, and domestic work for others. Informal employment represents about 80 per cent of women’s employment in Sub-Saharan Africa, Southern Asia and the Pacific, compared to about 74 per cent of men’s, although for developing countries as a whole, it represents 67 per cent of women’s employment and 60 per cent of men’s employment (United Nations 2009).

The result of women’s emp...

Table of contents

• Routledge International Studies in Money and Banking
• Contents
• Figures
• Tables
• Contributors
• Acknowledgements
• Abbreviations
• 1 Taxation and gender equality
• 2 Methodology and comparative analysis
• 3 Gender equality and taxation in Argentina
• 4 Gender equality and taxation in India
• 5 Gender analysis of taxation in Mexico
• 6 An investigation into the gender dimensions of taxation in Ghana
• 7 Gender equality and taxation in Morocco
• 8 Gender equality and taxation in South Africa
• 9 Gender equality and taxation in Uganda
• 10 Gender equality and taxation
• 11 Conclusion and policy recommendations
• Index