A joint blog by Marcello Estevão, Global Director, Macroeconomics, Trade & Investment, World Bank; Vitor Gaspar, Director, Fiscal Affairs Department, IMF; Navid Hanif, Director, Director of Financing for Sustainable Development Office, UNDESA; Pascal Saint-Amans, Director, Centre for Tax Policy and Administration, OECD
Women in all types of economies have borne a disproportionate burden of the global pandemic. In both developing and developed countries, women have suffered heavier job losses, reflecting their concentration in sectors hit hard by lockdowns and reduced mobility, and in informal employment without access to social protection. Of 48 countries surveyed by the World Bank, women lost employment at a higher rate than men in most of them. Women entrepreneurs have also borne a disproportionate burden of business closures and reduced sales and profits. Without specific offsetting interventions, these changes could lead to an increase in household poverty and hamper the development of children. Women have also undertaken a disproportionate share of the increased responsibilities for childcare resulting from closed schools and childcare centers and for the care of the elderly and sick family members. Labor market and social protection measures enacted to address the economic fallout have helped but have not been adequate to address these additional burdens. Finally, in developing countries, the shift in fiscal resources to address the pandemic may leave critical programs for women and girls, such as maternal health and reproductive and family planning services, short of funds.
To enhance economic growth and sustainability as the world emerges from the pandemic, it is essential that policy makers employ all the tools at their disposal, including using the tax system to promote gender equality. Many governments have sought to promote gender equality through spending measures, while only a few have done so with tax measures.  As governments grapple with the heightened debt resulting from COVID-related slowdowns in the medium term and consider raising additional resources, it is essential that they take into account the effects of revenue-raising measures on gender equality and economic participation of women.
There are various ways tax reform can contribute to gender equality. The structures and administration of tax systems can favor or disadvantage women through both explicit and implicit bias. Explicit biases in tax systems are laws and regulations that discriminate against women (or, in a few cases, favor women) and are most typically found in the personal income tax or, less frequently, wealth taxes. Implicit biases arise because women and men tend to differ systematically in behavior—in the ways they earn, spend, and invest income and wealth – and can arise in relation to a wide range of taxes.
Most personal income taxes are now based on individual assessment (rather than joint or family assessment), but they can nonetheless contain explicit gender bias in several different ways. These include permitting tax preferences only for male taxpayers, assigning joint business or asset income only to males, and allowing only males to have legal standing on tax issues. Although explicit bias that disadvantages women is slowly being removed from tax codes, it is necessary to ensure, as soon as possible, that tax codes are amended to end all such discrimination.
Implicit gender bias is more pervasive. An important source of this bias is found in the design of personal income taxes. For example, under a joint assessment regime, higher effective tax rates on secondary earners, most often women, may cause an implicit bias. Similarly, if a deduction is available for unreimbursed work expenses that are predominantly borne by men (say, for instance, the purchase of uniforms or tools) but not for work expenses that are predominantly borne by women (say, for instance, the cost of childcare or finding secure transportation after dark), this may be another source of implicit bias. Going forward, expanded allowances, including refundable tax credits for childcare and targeted transfers to low-income households, should be considered to mitigate such biases. Other mechanisms can assist those in the informal sector or below taxable income thresholds.
The progressivity of the income tax is an important issue for gender equality. Working women, on average, earn less than men. The disparities are generally higher in the poorest countries of the world. Most personal income taxes on labor income are at least somewhat progressive, applying higher average tax rates as income rises, although the personal tax base remains narrow in many developing countries. Ensuring that personal income taxes help mitigate gender bias through progressivity should be a priority.
For most developing countries, the greatest share of overall government revenues is derived from broad-based consumption taxes such as the value-added tax (VAT), which may also contain implicit biases. The broad-based nature of VATs may raise the price of services, including those that substitute for household services. This may create a disincentive for women to work. As broad-based VATs have many theoretical and practical advantages, such disincentives are best addressed through subsidies or the personal income tax. However, many VATs also provide exemptions or lower tax rates for necessities like food, education, health care, and childcare to reduce the burden on the poor, which have also been found to be important for gender equality. Governments should ensure that tax reforms undertaken to raise revenue do not undermine the affordability of these basic needs. Tax systems can contribute to redistributing income toward low-income households, including those headed by lone mothers, and VAT measures are often needed in countries where direct transfers to low-income households are not possible for administrative reasons. Some scope may exist to consider favorable treatment, under a VAT, of products disproportionately or entirely consumed by women to offset disabilities elsewhere, which meet a basic need and are critical to women’s full educational and workforce participation.
Governments should not offer ineffective and unnecessary corporate tax incentives. To the extent that sectoral preferences are used, though, countries should assess the impact of these preferences on workers, consumers, and investors, including whether there is a fair distribution to industries where low-wage workers, informal workers, and microentrepreneurs, especially women, predominate. These industries include hospitality, restaurants, and small personal services businesses.
International trade taxes are complex, and the gender implications are not always clear. However, some scope may exist, under programs of trade tax reform, for reducing taxes and other barriers on trade in sectors where women make up a disproportionate share of the workers, such as the garment industry and services, to help stimulate recovery in these crucial industries.
In terms of tax and customs administrations, governments should design tax systems, information, and services and procedures for taxpayers that are friendly to women and the small enterprises where they are concentrated. Globally, women remain at a disadvantage in starting and building businesses. One hindrance includes difficulties in dealing with tax and customs administrations, especially in countries where women’s literacy and digital skills are limited, and social customs do not support women’s agency. Governments should elicit views from women in the workforce as to how to make the administration of taxation more supportive. Increasing the share of women employees at all levels in tax administrations could support the adoption of practices and an environment that is supportive of women.
In summary, at this unusual economic time, governments should consider how specific tax policies and practices could promote gender equality. These include changes to taxes to fully eliminate explicit bias and judicious measures to reduce implicit bias. Governments can take positive measures to support households struggling with added homecare responsibilities and services disproportionately affected by COVID-19. Governments should also make efforts to enhance women’s ability to interact productively with tax and customs administrations. Finally, there should be continued priority attached to the development of socio-economic, tax, and expenditure data required to analyze the gendered effect of fiscal policies.
The PCT Partners are committed to engaging with each other, governments, and civil society through regularly exchanging views on the impact of taxation on gender equality and helping guide governments in formulating policies and procedures. A public workshop on June 15, 2021, will offer a forum for the exchange of country experiences and the empirical work of the PCT Partners and other organizations. The virtual workshop will serve an important purpose in bringing a renewed focus to how tax systems can address gender equality objectives through substantive policy and administrative actions.
Photo credit: World Bank Flickr