Blasé Capital REGRESS/PROGRESS

Three insights stand out from the latest Oxfam analysis of tax-related recommendations by the International Monetary Fund (IMF) to the various nations. The first is that in the past few years, India received the highest number of the so-called ‘regressive’ inputs. According to a media report, of nearly 300 such proposals issued to more than 40 nations, India accounted for 126, or 44 per cent. This sounds quite unbelievable, and implies that despite lauding India on various fronts, the IMF believes that the nation’s tax system needs several changes to evolve a stable and uniform system. Indeed, it thinks that the Indian tax system is highly uneven and fragmented, and the regressive policies will lead to more uniformity, and expand the tax base. The fact is that there are huge sections of people, firms, and institutions that do not pay, or under-pay, taxes for several social, economic, and political reasons. The measures to expand and enhance the base were only partially successful, which is evident from what experts contend.

However, the flip side of regressive, or uniform taxation, especially in low- and middle-income nations like India, is that these are “likely to exacerbate inequality in these countries, by placing the bulk of the tax burden on middle- and low-income people while leaving the wealthiest unscathed.,” states the Oxfam report. As taxes become uniform, and the focus is to stretch them across sections, rather than force the wealthy to pay more, those who do not pay because of low incomes get dragged into the tax net. In the past, India’s measures to link PAN with bank accounts, and Aadhar, or nudge people for digital payments, which can be tracked and monitored, and impose GST have expanded the tax base, claims that are confidently and proudly espoused by the policy-makers. But, in effect, some of these regressive policies put more burden on the lower-income groups, compared to the rich and wealthy. Oxfam feels this is unfair in an environment where the wealth of the wealthiest across the globe surged by 81 per cent since 2020.

India is not alone. According to Oxfam, regressive tax proposals are regularly imposed on the low- and middle-income nations by the IMF. Of the 1,049 recommendations to 125 nations that were examined, 59 per cent of the tax advice to the above nations were regressive. In comparison, 52 per cent of them to the high-income nations were progressive. Indeed, these countries did not receive a single regressive recommendation, according to a media report. “A progressive tax system ensures that those who have higher income, and more wealth pay proportionally more taxes than those who have less,” states the Oxfam report. The proposals to South Asian nations were “by far the most regressive,” followed by those suggested for Latin America, and the Caribbeans, and sub-Saharan Africa. In Chile, for example, the IMF proposed higher tax rates for low- and middle-income brackets, and to leave the tax rates for the rich untouched. In Nigeria, where a third lives in poverty, it wanted a higher value-added tax. In Hungary, it did the unexpected, and advised against a windfall tax on energy firms, something that everyone now wants to be imposed across the globe.

Taxing the wealthy was low on priority, according to Oxfam. Of the 1,049 proposals, a mere 30, or three per cent, pertained to net wealth taxes, and tax on income from wealth like capital gains. Rich nations like the US, the UK, Switzerland, Norway, Sweden, and Netherlands got the highest progressive inputs. Surprisingly, such nations included China, Angola, Botswana, and Kazakhstan. In New Zealand, the IMF felt that the corporate tax was too high “compared to peer advanced economies,” and wanted it to be lower. In Sweden, it wanted lower taxes on ‘deferred capital gains’ to address ‘distortions in the housing market.’ In the Philippines, the IMF wanted to rationalise exemptions in value-added tax. Hence, according to Oxfam, there was the use of “double standard” as the IMF gave progressive advice to wealthy nations, and regressive ones elsewhere. “The Fund may provide equally progressive tax advice to all members, or admit its commitment to tackling inequality is merely rhetorical,” said Kate Donald, head, Oxfam. This calls into question the “evenhandedness it holds as a core principle.”

Hence, Oxfam’s advice to the IMF is to “systematically place inequality at the heart of all fiscal advice,” with a default to adhere to revenue-raising policies that ‘enhance the progressivity of national tax systems.’ The over-reliance on consumption taxes needs to be discouraged, and so does on the other regressive measures that over-burden the poor. The idea is to significantly broaden the proposals to further tax high net-worth individuals, as well as wealth, which is at the heart of the inequality debate across the globe. The need is to curb tax evasion, and avoidance, which are practiced by the rich, and not to embrace the poor in the tax net, given their inability to pay. There should be some threshold limits for the wealthy to pay more, as there should be some floor limits for the poor not to pay taxes, or get exemptions, like India’s policy to have zero tax on personal income up to INR 12,00,000 a year.