This article is written by Gabrielle Beran, governance and programme manager, International Senior Lawyers Project-UK, London. gberan@islp.org

What do gender equality and taxation have in common? Most people will be hard-pressed to give you an answer, but the two are actually intimately linked.

Like so many NGOs (non-government organisations), at the foundation of our work is a commitment to advancing the United Nations Sustainable Development Goals (UN SDGs).

There is growing concern that to reach the ambitious UN SDGs, developing countries in particular will need more income and to change the way they collect and spend it. Taxation is central to the development policy agenda as sustainable financing is increasingly recognised as a key tool to combat the human rights deficits identified by the SDGs.

Women in developing economies are more likely to live in poverty than men, and this difference is even greater when women are young or elderly. A fairer tax system is a direct way of tackling that inequality.

SDG 5 sets out to achieve gender equality and to empower all women and girls. Though it often flies under the radar, taxation can play a vital role in this. This article explores why women, particularly women in developing countries, are impacted by taxation systems in a way that has only recently become part of the mainstream tax and development debate.

Those of us who work in the tax justice space speak a lot about fairer taxation — ensuring that the burden for paying tax falls proportionately on those who are most able to pay. This is essential in developing societies and a key enabling factor for these countries to reach their potential. Used well, tax policy is the most sustainable financing instrument to attain UN SDG 10 of reducing inequality within and among countries. Tax policy can reduce the inequalities that diminish the capacity of women to lead the lives they want and be independent.

So why do existing tax strategies in developing countries have the potential to disproportionately harm women?

There are two sides of the (literal and figurative) coin to consider when looking at the gendered bias of taxation in developing economies: revenue and spending. That is, how tax is collected and how government expenditure of that revenue impacts women.

Revenue

Chiefly, governments raise tax revenue through taxes on corporate profit, personal income and wealth, and indirect taxes (such as Value-Added Tax, or Goods and Services Tax and duties).

Corporations
Adequate corporate tax collection, particularly from international private companies, is under-utilised, most often because developing countries feel they have to attract foreign investment to create jobs, income and commercialise their natural resources.

In doing this, countries are sometimes unduly generous in the subsidies they offer corporations, such as favourable tax treatments and tax “holidays”, especially in natural resource concession agreements. Using treaties to provide benefits to all investors from a particular country is a growing trend that often harms developing economies by lowering rates of revenue from foreign activities.

These treaties, and other complex legal mechanisms, allow multinational enterprises to use tax “loopholes” to declare low profits, or even losses, in developing countries. That means they avoid paying tax there and instead pay at a lower rate in another jurisdiction.

Therefore, through disadvantageous negotiations, poor political decisions and the way international finance works today, developing countries do not always get the tax revenues they could be entitled to from corporate investment. There is room for legal and policy assistance to work to level the playing field by advising on the suitability of proposed treaties and on contracts to include language that protects the interests of the developing country.

This a core part of what we strive to do at ISLP, but it is hard work and it takes time.

Personal and Income taxes
Developing countries rarely have optimised systems for personal and income tax collection either. There are many reasons for this, some of the most common being the prevalence of informal employment, ineffective methods to catch cheats and close loopholes, widespread perceptions that the tax system is unfair, which reduces willingness to pay, and inadequate financial literacy and tax education.

The informal sector is difficult to tax because accounting records, reporting and rights for workers are usually minimal. In developing economies the vast majority of employment is informal. According to the ILO, 85.8% of workers in Africa are in the informal sector. In Asia-Pacific the number is 71.4%, in the Americas it’s 53.8% and in the Arab States it is 68.6%. And women make up a larger proportion of the informal economy.

The way governments collect tax can both negatively and positively affect equality and women. Likewise, the way governments spend their money has a big impact

Of course, increasing the taxation of the informal market would be beneficial in tax terms, but as this is a sector in which women are prominently involved, there are some negative consequences that would need to be addressed through other policies.

Indirect taxes
To counter these deficits in tax revenue collection, there has been a trend towards indirect taxes, historically encouraged by some multilateral institutions, such as IMF. A 2010 assessment observed that in “low-income” countries, about two-thirds of tax revenue was raised through indirect tax. While this is old data, it goes some way to illustrating the extent of the problem — that instead of relying on foreign investors, companies and income tax to increase tax takings, the burden is passed on to the people, and to women in particular.

Indirect taxes are popular among some because, in absolute terms, the wealthier pay more indirect taxes, because they consume more. However, as a proportion of income, those who are less wealthy spend more of their income on goods and services and therefore pay a greater share of their income to indirect taxes. Women traditionally spend a greater proportion of their income on indirect taxes because they are often responsible for purchasing a higher volume of basic goods (such as cooking oil or food staples) and services for others because of their care roles.

Therefore, of the three key types of taxation, enhancing corporate taxation would have the least negative impact on women. It is disappointing that corporate taxation today only accounts for an average of 15% of tax income in developing countries.

Spending

As we have seen, the way governments collect tax can both negatively and positively affect equality and women. Likewise, the way governments spend their money has a big impact.

If state governments choose to spend their revenue for the good of their people and the development of their country, they can provide good quality public services as necessitated by the equality provision of SDG 5. This is also known as “Gender Responsive Budgeting”, whereby the different needs of women and men are catered for to promote gender equality.

Ideally, tax revenue should be spent on services such as education, health clinics, and vital infrastructure, such as clean water supplies in accessible locations.

Progressive tax systems can allow women to take on paid work outside the home, to improve the health and wellbeing of communities and therefore empower women to become productive partners in their developing economies

Women often rely more on these services for two main reasons. First, they are more likely to make up a larger part of the poorest in a society and therefore be in positions of state dependence. Second, women and girls are traditionally the primary caregivers or care coordinators in their domestic groups and these groups may have specific needs — whether that is the needs of children, the elderly, or a woman’s own sexual and reproductive health needs.

Therefore, if the service is not provided by the state, the citizens often have to provide the service themselves, or use their income to fund it — and while this affects all genders, if women are already poorer, it can be more punitive.

Countries around the world have committed to promoting policies to encourage productive work and employment for all their citizens under SDG 8. However, the more time women spend providing basic goods and services for their families, such as caring for sick relatives without proper medicine or travelling long distances for water, the fewer opportunities they have to take up paid work or pursue education and achieve security and prosperity. Furthermore, they may endeavour to fit in informal work that can be done around their care commitments and this work is often poorly paid, precarious and can be exploitative. If women have been denied education because of a lack of opportunity and state provision for it, these informal work opportunities are likely to be even more dismal.

Letting women live their best lives

If societies commit to Gender Responsive Budgeting, lowering corruption and consulting with women in order to provide stable public services and adequate infrastructure to meet their citizens' needs, women could take a greater role in the formal workforce and then, in turn, contribute tax to support this cycle.

The design and implementation of internal revenue structures affect all citizens, but the negative effects of insufficient tax collection, gender-biased regulations and lack of spending on essential public services and infrastructure hold women hostage to their nation’s tax systems.

Through the declaration of the UN SDGs, the international community has signalled the importance of all parts of society to work to improve women’s lives. As part of that, progressive tax systems can allow women to take on paid work outside the home, to improve the health and wellbeing of communities and therefore empower women to become productive partners in their developing economies. — Gabrielle Beran

(Picture credit: Unsplash)