Presentation Tax and Inequality Claire Kumar

8/10/2019 Presentation Tax and Inequality Claire Kumar

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Claire Kumar

Kenya

2ndDecember 2014

Taxation and InequalityInternational Tax Academy on Tax Justice:

Financing Development in Africa


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Inequality: an issue for our

time

Who is talking about it?

What is behind the acceleration of the debate?


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Why do we care?

The moral position

The inequality-poverty connection

Global research: inequality matters significantly in determiningglobal poverty projections(Peter Edward and Andy Sumner, TheFuture of Global Poverty in a Multi-Speed World: New estimates of scaleand location, 2010-2030,Centre for Global Development, 2013

More unequal societies have worse social outcomes Wilkinson and Pickett, The Spirit Level: Why Equality is Better for

Everyone

Conflict, violence and insecurity


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How big is the problem

anyway?

Oxfam:Even it Up: Timeto end extremeinequality, 2014 85 richest people as

wealthy as the poorest half

of the world

Saez:US income 2009-2012 Top 1% up 31.4% Bottom 99% up 0.4%

OECD:3 decades prior to2008 Wage gaps widening and

income inequalityincreasin in a ma orit of


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And in sub Saharan Africa?


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The IMF says:

On average across the region income inequalityappears to be decreasing, but

Their data is old (up to 2005)

Of 40 countries studied:

For 17 it was decreasing

For 9it was increasing (Niger, Rwanda, Ghana, CotedIvoire, Madagascar, Mozambique, Nigeria,Tanzania, Mali)

14 countries left out (including Angola, Cape Verde,

Comoros, Liberia, Namibia, Zimbabwe)

Francesca Bastagli, David Coady and Sanjeev Gupta, IncomeInequality and Fiscal Policy, IMF Staff Discussion Note,


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TJN-A findings on inequality

Ghana and Nigeria: income inequalityconsistently increasing

South Africa, Kenya and Malawi: fluctuations,

including recent increases

South Africa: note the sharp rise of the top 5%

Zambia: early declines but now rising fast

Sierra Leone: consistent declining trend (but very

limited data) Zimbabwe: no data


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TJN-A findings on inequality:

Nigeria

1986-2010

Ghana

1988-2006

South

Africa

1993 - 2011

Zambia

1993-2010

Change in

income shareof 10% richest

+17% +20% +15% +21%

Change in

income share

of bottom 40%

-9% -19% -18% No change

Word Bank, Poverty and Inequality

Dataset


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Why is inequality rising?

The growth model?

The taxation model?


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Why tax matters?

Redistributive measures

Progressive taxation

Land reforms

Increasing incomes of

the poor

Setting / increasing minimum

wages

Social protection systems (basic

income grants / unemployment

benefits, cash transfers, pensions,

public works schemes etc.)

To tackle inequality we need:


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How much difference does it

make?

Before tax and welfare spending, Germanyand Belgium are more unequal than the US(Ha Joon Chang)

Inequality in Latin America and the Caribbean

is similar to many developed nationsthedifferences lies in policies of redistribution

Series of studies in Latin America: they allsuggest slightly regressive tax systems whichfar from improving the distribution of income,

actually encourage greater inequality(ECLAC, The Tax Gap and Equity in LAC,Fiscal Studies No. 16, 2010)

Absence of studies related to inequality before

and after tax in sub-Saharan Africa


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A taxation model gone wrong Declining top marginal income tax rates (1970s: 70%)

Tax consensus:

ignore redistribution aspects

focus on consumption/sales taxes

Weakening corporate tax contributions

Exemptions/incentives International corporate tax system not fit for purpose

Poor extractives taxationmodels

Poor performance of other asset and income taxes

PIT (outside of PAYE); Property tax ; Capital gains

Major challenges taxing High Net Worth Individuals

Enabling financial secrecy and proliferation of use of tax

havens

TJN-A thesis: financial secrecy and tax havens

undermines progressive taxation: Can Africa achieve

progressive taxation in this context?


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What can we do about it?

Global wealth tax?

New income tax consensus:

the 1% should pay tax at 80% (Saez and Piketty)

An alternative approach to international corporate

taxation

Reform international tax rules to ensure a fairer

allocation of tax between countries (includingremoving the rationale for the use of secrecy

jurisdictions)

Reform countries tax systems which have

particularly harmful spillover impacts

Move from a damaging framework of global tax


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What can we do about it?

Refocus revenue authorities (and donorassistance) on direct taxes of income and

assets

Corporate income tax

Personal income tax

Capital gains tax

Property tax

Enforce minimum standards on data:

Inequality before and after tax (and social spending)

Tax incidence analysis per tax type

Documents

Presentation Tax and Inequality Claire Kumar