It as an incontrovertible truth that tax systems can contribute to social justice by raising revenues for public spending on services and fostering equitable economic development, maintaining of key institutions which service public needs, redistributing wealth to reduce income and gender inequalities, ensuring accountable governance, influencing damaging practices of individuals and companies by ‘repricing’ goods, incentivising economic activity in support of national development plans and industrial policies to help create employment and provide goods and services.
Tax justice is a broad concept developed by civil society to enable stakeholders to articulate what they think is acceptable in a tax system in any given context. The Tax Justice Network Africa’s report suggests that important elements include putting tax in a human rights and social welfare context, making tax a part of a rights-based approach to governance and ensuring that the voices of less powerful people are heard alongside the voices of powerful special interests.
Tax justice has two aspects:
Horizontal justice – realised when taxpayers who face equal conditions, for example in terms of income or family size, pay the same amount of tax.
Vertical justice – realised when people who are facing different economic conditions are treated differently in the sense that their tax responsibilities are differentiated, ensuring those who are in a better economic situation pay proportionately more.
Tax justice contributes to social justice in two ways: by financing public expenditures that play a role in reducing inequality, meeting needs and realising rights; and by ensuring that taxes are raised in a way that distributes the tax burden equitably, and helps to redistribute income and wealth. The concept of tax justice is particularly relevant to any country which seeks to achieve inclusive growth which lifts up the broader community and can afford to provide public services such as health, education and potable water.
The role of economic policy in addressing inequality is at the forefront on current policy debates. It has been argued that inequality can impede the pace and quality of growth and, certainly, it undermines good governance by enabling political capture by elites and entrenching their interests above those of the wider population. Inequality also makes it harder to fund universal public services, and there is evidence that it harms health and educational outcomes. Inequality is therefore a barrier to social justice, and tax and fiscal policies are critical in addressing it.
Most developing economies require radically different economic and social policies with social justice at the forefront, based on equitable and progressive policies to raise sufficient revenues for public expenditures. Such policies must prioritise marginalised groups and regions, alongside investment and incentives to create decent work opportunities and more productive industrialised economies which are not hugely dependent on primary product extraction.
Tax systems can therefore be assessed from a tax justice perspective and this includes the need to ensure tax systems raise sufficient revenues to finance public goods while avoiding negative effects such as discouraging domestic or external investments; avoiding unnecessary tax incentives that are a drain on public resources; designing tax systems to ensure the equitable distribution of tax burdens; the impact of tax systems on gender equality; and the need to address tax evasion and avoidance.
It is therefore mandatory for citizens together with civil society groups to play an important role in ensuring that tax and fiscal policies are relevant to national contexts, promote social justice and are coherent with national development and human rights commitments.
The key principles upon which we can assess tax justice include;
· Tax and fiscal systems should support sustainable and equitable national development. They should be aligned to national development plans and industrial policies and ensure the efficient use of resources, including, for example, by responding to the different needs of men and women, financing public investments that bring sustainable economic benefits, and supporting social protection and public services that meet the needs for people living in poverty.
· Tax policies should be effective and fair. The burden of taxation should be distributed equitable and proportional to ability to pay. Tax collection should be efficient to maximise the available resources for sustainable development. Fairness should be strengthened by improving differentiation in tax rates, and redesigning tax incentives (for example, to support productive economic activity and small enterprises) and ensuring ‘direct’ taxes on goods and services distinguish between luxury and essential goods.
· Tax systems should be transparent and accountable. Governments should respond to the needs of citizens, implement policies that are coherent with sustainable development, combat corruption and tax dodging, and put in place mechanisms to expand community and civil society participation in tax and budget processes at all levels.
The effectiveness of tax and fiscal policies should be measured not only in terms of the revenue generated, but also by the extent to which this revenue is being used to support coherent and effective plans for achieving developmental goals and economic and social benefits. Tax systems therefore need to be assessed in conjunction with fiscal policy and particularly public spending on key areas such as social protection, health and education. Tax and fiscal policies need to also positively support the achievement of women’s rights and their economic empowerment. It is also critical to ensure that tax systems support sustainable and equitable economic development, including the creation of sufficient decent work to employ a growing labour market made mainly of youths.
Vince Musewe is an independent economist and you can contact him on vtusewe@gmail.com.