What's gender got to do with taxes?

Ensuring that tax laws and regulations are followed and reported correctly is critical to improving governments’ efforts to raise funds needed to alleviate poverty and deliver public services. A wave of studies from recent years identifies reforms to increase compliance with tax laws and regulations in low- and middle-income countries, including better enforcement and audits with third-party data, better incentives for tax administration personnel, and the integration of digital technologies in tax administration. 

In all these efforts, one critical question often remains overlooked: How does gender interact with tax compliance? The Global Tax Program’s latest knowledge note, "Unpacking Tax Compliance from a Gender Perspective," delves into the question of how to make sure everyone is treated fairly when it comes to taxes and helps us understand why this is important for both men and women, revealing crucial insights into efforts to transform how we approach tax compliance and gender equality.

Why Gender Matters in Tax Compliance?

First, gender may influence tax compliance behavior. Evidence from high-income countries suggests that women may be less likely to underreport incomes and evade taxes (e.g., in Denmark and New Zealand). If tax evasion is more prevalent among men in low- and middle-income countries (LMICs) as well, this can undermine the progressivity of the system, leading to a situation where the effective tax rate is higher for lower-income earners, who in LMICs are disproportionately women, thus exacerbating gender income gaps. Unfortunately, data on tax compliance behavior in LMICs is lacking.

Second, the impacts of governments’ efforts to enforce compliance, might not be the same for women and men. For example, focusing on fraud for child tax credits, could adversely affect women and low-income families more than focus on compliance with other taxes because women tend to benefit from these tax credits. Targeting enforcement efforts on increasing tax compliance of high-net-worth individuals is likely to increase the progressivity and improve gender income gaps because women are underrepresented at the top end of the income distribution. 

Third, female and small taxpayers might bear disproportionate tax burdens due to less familiarity with the tax system. For example:

• A recent cross-country study uncovers that small taxpayers are less likely to claim input VAT credits so they are leaving money on the table, which results in higher tax burdens. If women are more likely to be small taxpayers and have less knowledge of the tax system, they may be adversely affected. 

• Additionally, women may face barriers in accessing tax services, especially in regions with restrictive social norms, and they may be less likely to seek professional tax assistance (e.g., see this study of taxpayers in Pakistan). 

• In Africa, low-income female traders or entrepreneurs often encounter multiple taxes or fees, which can discourage full economic participation (e.g., in Nigeria and Sierra Leone). 

The Gender Digital Divide in Tax Services

Digitization offers a mixed bag for women taxpayers. It can alleviate mobility and time constraints, reducing the need for direct interactions with tax officials. However, without proper design, digital tax systems could exclude women lacking digital literacy or technology access.

Our research underscores the importance of making digital tax services accessible to all, with content that is clear and training that addresses the different needs of women and men. Bridging the digital divide, can lead to more inclusive and efficient tax systems.

The Data Gap

A significant lack of gender-disaggregated data hampers our understanding of the gender dynamics in tax compliance. Without this data, it's challenging to design fiscal policies that promote inclusive growth. 

Closing the Gaps – Policy Recommendations

Our Knowledge Note proposes several policy actions to tackle gender disparities in tax compliance:

• Collect and analyze sex-disaggregated tax administrative data to inform policy decisions.

• Develop tailored taxpayer services and education campaigns that address different needs of women and men, including simplifying filing and payment processes and targeted outreach programs. Segmenting taxpayers into groups by business size or sector can help respond to their specific challenges. For example, since women often predominate in small businesses, establishing small taxpayer offices may better help women access services.

• Design taxpayer surveys to capture the experiences of women and men with the tax systems, including what taxes they pay, where they pay them, and constraints they face in doing so. Close attention should be paid to the survey design, methodology and implementation to ensure that women’s views are reflected – which is important in contexts where lack of access to technologies or the internet could restrict women’s responses. 

• Invest in digital literacy programs and ensure that digital tax platforms are user-friendly and accessible to women, particularly in low-income and rural areas.

These recommendations aim to create a tax system that supports gender equality, reduces income inequality, and promotes inclusive economic growth.