The Fair Tax Monitor (FTM) is a unique evidence-based advocacy tool that identifies the main bottlenecks within tax systems and provides strong evidence for advocacy work at national and international level. The tool allows for a comparison of tax policies and practices in different countries, using a standardized methodology and unified research approach thanks to jointly developed common research framework. The 2016 pilot edition relies on data and analyses presented in the country reports from Bangladesh, Pakistan, Senegal and Uganda.

THE FAIR TAX MONITOR

  1. BACKGROUND

  2. APPROACH

  3. CHALLENGES


 

1. BACKGROUND

The Fair Tax Monitor is a unique evidence-based advocacy tool that makes it possible to identify the main bottlenecks in national tax systems and to provide strong evidence for advocacy. At the same time, the tool allows for a comparison of tax policies and practices in different countries, using a standardized methodology and unified approach in the research.

The tool relies on the data and analyses presented in the country reports written with a common research framework. At later stages in the project, it will also enable the monitoring of progress in the countries over time. Internationally, the Fair Tax Monitor contributes to global advocacy efforts by providing solid evidence and by showcasing the relative fairness of selected tax systems.

The current work is only the beginning of what we hope will be an encompassing tool covering a broad range of countries. The methodology and common research framework are based on a participatory process, including country teams in Uganda, Senegal, Bangladesh, Pakistan, Kenya and the Netherlands. Both reports were reviewed by a broad Advisory Group and during a stakeholders’ meeting in Nairobi in September 2015.

In this phase, with the country reports ready and the scoring methodology tested, we share the outcomes as widely as possible. In doing so we invite you and all interested parties to get in touch with us and share your thoughts and ideas for adaptation and improvement. Please use the following email address to contact us: fairtaxmonitor@oxfamnovib.nl. The ultimate goal is to have the FTM’s research framework, the methodology and web-tool be used and supported by an ever-increasing number of organisations within and outside the Oxfam and TJN-A networks.

2. APPROACH

The Fair Tax Monitor uses the data from the country reports and the methodology that Oxfam Novib, TJN-A and partners have developed. All documents are available to download on the right. Thanks to the common research framework, the country reports collect information uniformly and provide analyses of the same issues across the countries. Therefore, the same methodology can be applied to analyze the data collected in the country reports, which subsequently allows for comparing the different aspects of tax systems.

The FTM is currently structured to reflect the state of tax systems in developing countries. With future adjustments it may be possible to include a wider range of countries. The methodology is based on the experience of both local and international organizations, and at the same time it builds on the knowledge of experts in global tax policies.

The structure of the methodology used to analyse the data is rooted in the common research framework and is divided into six thematic categories used for evaluation. These categories are meant to cover the main issues that tax systems in developing countries face today, and to reflect the idea of a fair tax system. The categories included in the FTM’s methodology to evaluate the tax systems are:

To properly assess the categories above and to be able to compare the data between the countries, each category is divided into several topics for which a series of scoring questions are designed. The scoring questions were formulated as binary (yes/no) questions and their structure is adjusted so that a scoring point is assigned to a positive answer and no scoring point to a negative answer. In this way, it is possible to work with both qualitative and quantitative data and to combine them in constructing the final score for each category.

There are certain exceptions to the rule of assigning a scoring point to a yes answer to a scoring question, and vice versa. Firstly, when no data is available for a specific question, the question is not included in the scoring process. Secondly, some questions include an additional ‘b-question’ that allows the countries to gain a part of the score, e.g. when there is progress towards the ideal situation, but the final goal has not yet been reached, the partial scores reward the efforts made.  And lastly, in the category of Accountable public finances, four scoring questions have been included that are retrieved from the Open Budget Index (OBI) created by the International Budget Partnership[1]. The questions are weighed on the original score received in the OBI.

As explained in the previous paragraph, each of the categories includes several thematically related topics which receive scores based on binary questions. All topics have an equal importance (weight) in each category and the final score for the whole category is calculated as a sum of accumulated scoring points. This sum is then adjusted to fit the scoring scale, reflecting the relation between points collected compared to the maximum possible score. More details can be found in the scoring methodology available on the website.

The scoring scale is defined from zero to ten; zero representing an unfair component of a tax system and ten representing a fair component of a tax system. The final scores are rounded up for practical purposes, but the exact scores are available in the methodology sheets for each country. The scale is also divided into five coloured intervals corresponding to scores (0 to 2), (3 to 4), (5 to 6), (7 to 8) and (9 to 10).

3. CHALLENGES

The development of the Fair Tax Monitor was an organic process and numerous changes were made to improve the research framework and the methodology using the feedback from numerous consultations. In the process, we encountered various challenges that shaped the project’s final outcome. The challenges were mainly technical difficulties, issues with time limitation and problems in properly incorporating certain topics into the framework. We strive to overcome these issues in the future and we therefore welcome any suggestions and recommendations.

Research process

The first issues appeared when we realized that the practical implementation does not always happen as planned and that the assumptions initially made in the research framework and methodology turned out to be insufficient when applied in practice. Therefore, adjustments had to be made to both reports, even though the country research was already in the final stages. As a result, certain data and statements lack more detailed analyses, although they deserve to be explored further. These changes have also caused discrepancies between the methodology and the country reports in terms of structure and terminology (names of categories, classification of the topics researched, etc.). We plan to incorporate properly the lessons from the 2016 edition in the future so that we get more comprehensive and better structured information about the researched topics.

Data availability

Great difficulties were encountered in terms of data availability, especially when it comes to disaggregated data, which was already pointed out in the preliminary study TJN-A carried out in the framework of this project in March 2015[2]. Although the data that was obtained from the national databases provided more complete and more recent information, the researchers faced challenges with lengthy procedures in requesting the data available only upon request, and with the aggregated nature of the data, which hindered further analyses.

Comparability

The design and structure of tax systems differ from country to country, which makes it a challenge to compare and classify. This problem was anticipated and therefore we tried to prevent confusions in terminology in advance as we provided a glossary with potentially unclear expressions. However, certain differences where noticed only when the country reports were finalized. A case in Bangladesh provides an example of a misunderstanding in analyzing excise taxes. What is considered to be an “excise tax” in Bangladesh is a very specific tax levied on a couple of items and does not fulfil the same function as in other countries. Only later was it found out that Bangladesh applies a “supplementary duty” applied that serves the same purpose as the excise tax. These last moment findings were addressed briefly and were taken into account while constructing the scores, but were not properly analysed in the country reports.

Gap between policies and practices

It is also important to mention the challenges we faced due to differences between policies and practices. As in many other areas, when it comes to taxes, there is a significant gap between policies and their implementation in practice. Thanks to the knowledge and experience of the researchers, certain differences were identified, incorporated into the methodology and reflected in the final scores. However, it was not possible to address all topics from the perspective of policy and practice, and therefore additional information accompanying the scores provide further insights in the cases where differences between theory and practice were identified.

Benchmarking

One of the main struggles while developing the scoring methodology was to find the right benchmarks that would identify whether the performance of the country is good (fair) or not. As there is a great variety of opinions on what ‘fair’ tax policies and practices are, international standards on what an ideal state should be like are not available in the majority of cases. Therefore, it was extremely difficult to set the benchmarks to assess quantitative data that would reflect the context of all participating countries. As a solution to this problem, we have opted for scoring the trend rather than finding a fixed benchmark evaluating the current state. This allows us to monitor the progress the countries made, even though they may not yet have reached the desired figures.

Public spending

Taxation is a complicated and rather technical topic and it goes beyond the simple perception of taxes as rates that are charged. One of the main purposes of taxation is to collect enough revenue and to redistribute it among the population. It is therefore inseparably connected to the expenditure side of the budget. Collecting taxes in a fair way, but not spending them on essential services and sustainable development does not benefit the majority of the population. We therefore realize that the connection between the revenue side of the budget and the expenditure side needs to be emphasized. This is why the category of ‘Pro-poor government spending’ was included in the methodology and the research framework. We acknowledge the limited depth of the information collected in this category; however, the FTM’s main objective is to analyse issues related to revenue generation. Furthermore, other existing tools can be used to assess government expenditures. Including an extensive section dedicated to this topic would duplicate work already done.

Gender

Another theme that needs to be improved in the research framework and methodology is gender. Gender justice[3] and the strengthening of the position and rights of women is one of the core values of Oxfam and TJN-A. However, we struggled with the question of how to add genuine and valuable gender components to the FTM.

During our discussions around tax and gender we came to the conclusion that there are two issues at the root of our struggle. First of all the difficulty of defining what exactly constitutes a fair tax system from a gender perspective, and secondly designing the specific research questions and indicators that would be helpful in assessing this issue. With regards to defining a gender-fair tax system, we felt strongly influenced by the so-called “taxpayer neutral approach”. This approach is based on the belief that identity characteristics (gender, gender identity, sexual orientation, race, religion, ethnicity, etc) should not play a role in designing tax policies. As such tax policies should only take financial positions into account (income, wealth) and not identity issues. The approach reflects a commitment to equality of opportunity and the desirability of an identity-blind society[4] as it upholds the principle of “equality before the law”. In this light, any suggestion that tax policy should treat men and women differently is directly contrary to the principle of equity.

On the other hand, the taxpayer neutral approach carries a significant disadvantage. As it does not consider identity characteristics important, it also does not attempt to evaluate the potential unequal impact of tax measures based on demographic differences among taxpayers. The lived reality of many women around the world shows that tax policies often do carry both explicit and implicit negative biases. Explicit biases are often easy to identify as these tax provisions discriminate outright against women. Implicit biases are not made evident just by analyzing a tax code, but become apparent when analyzing the real impact of certain tax policies. It is thus crucial for policy makers, civil society organizations and (I)NGOs to understand that taxation can have a clear interaction with gender norms in a society. What is taxed in a society, and how, always reflects a multitude of social, political, ideological and philosophical choices and ideas.

We therefore acknowledge the importance of doing research on the previously mentioned biases in the tax design and to make sure that a tax system disadvantages nobody. At this point, however, we do not think that the tax system should also be used to address the overall gender inequality that is present in society. We believe that the gender inequality that exists in a society, beyond a non-discriminating and non-biased tax system, should be further addressed through the expenditure side of the fiscal system, e.g. social protection programmes and targeted subsidies.

With regards to this edition of the FTM, even though we are aware of the fact that the implicit biases built into the tax systems often disadvantage women (and other disadvantaged groups), the difficulty of formulating concrete indicators, the lack of disaggregated data and the lack of concrete research findings have led to an unsatisfactory coverage of this issue in the FTM’s research. We hope that our 2016 FTM work will enhance discussions on tax (research) and gender, and will help design improved gender indicators that can be included in the common research framework to be used in future editions.

Overall, we are eager to improve the Fair Tax Monitor’s research and the methodology, as we realize that some of the above-mentioned issues are crucial to sharpening our analysis of tax systems. The next edition of FTM will be based on an improved research framework and methodology that reflect the challenges we have encountered over the past year. We will further explore the options of including the topic of gender in more detail, an extended glossary of common terms will be elaborated and improvements will be made in the research process.

For a further discussion about the assessment of taxation and natural resource revenues, informal sector taxation, and gender aspects of fair taxation, please download the background papers on the right.

 

[1] "International Budget Partnership." International Budget Partnership. Web. 02 Dec. 2015. <http://internationalbudget.org/>.

[2] The preliminary study is available in the section 'Resources'.

[3] “Gender justice” brings work towards gender equality into a rights based framework. It is the goal of full equality and equity between women and men in all spheres of life; resulting in women jointly and on an equal basis with men defining and shaping the policies, structures and decisions that affect their lives and society as a whole, based on their own interests and priorities. Gender Justice commits to taking a gender perspective on the definition and application of civil, political, economic and social rights.

[4] Nancy J. Knauer, ‘Critical Tax Policy: a Pathway to Reform?’, Northwestern Journal of Law & Social Policy, p.214-219.