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  • Taxing the Taxed: The Case for Differential Taxes

    WORLD OVER, tax is the highest source of government revenue. Even as the finance minister in India was raising the ceiling on taxable income for women, there was a petition in the Madras High Court questioning this. The petitioner alleged that the provision of taxing women less violates men’s constitutional right to equality. The HC, in turn, asked the Union Government to respond on why tax benefits should favour women. So why should men and women taxed differently?

    I am not an economist but I know from experience and conversations with women about their lives and the economics of their households that taxing women less makes sense. While doing research on this, I came across an excellent paper called Gender impacts of government revenue collection: The Case of Taxation by Kathleen Barnett and Caren Grown, which was commissioned by the Commonwealth Secretariat as a part of its commitment to integrate gender concerns into economic policy. It gives some solid reasons as to why men and women should be taxed differently. I thought I’d encapsulate some of these for you:

    Women’s work in the unpaid care economy

    World over, women have the responsibility of caring for children and dependents. As a result, they do a lot of unpaid work like cooking, cleaning and caretaking which are vital services to the paid economy. This work, though time consuming and backbreaking in many cases, is undervalued and not remunerated. In most households, this is what enables men to go out and do productive work. Feminists have argued that this unpaid, unremunerated work should be factored in while calculating the GDP of any economy.

    Employment differentials

    Though women do more work (including unpaid), their participation in productive work is very low. Even within paid employment, women are concentrated in clerical, sales and service jobs and are underrepresented in administrative and managerial positions. Women also exit the labour force frequently implying that their jobs are discontinuous, seasonal or on contract. Overall, women earn less than men. Disparity in earning is a persistent gender equality issue.

    Gender differences in property

    In many countries women are frequently denied the right to own property because of social norms. The land asset-ownership gap between men and women is huge. This reduces women’s capacity for risk taking, securing a place to live and securing resources for a livelihood. For many women, the only income is their wages without assets or other social capital.

    Gender differences in household decision making

    Studies reveal gender differentials in consumption patterns. Women tend to spend more on food, education and healthcare which enhance the well being and capabilities of children. This kind of spending leaves very little for savings or asset building. For example, women have to spend on household help or nannies to look after children and accomplish household chores, or rely on parents and other support if they have to join the productive workforce. Taxing women would mean that women would either have to reduce these spends or to maintain them, would end up spending less on their healthcare, work longer hours and have less leisure.

    Indirect taxes

    Besides income taxes, another important source of government revenue is indirect taxes. Indirect taxes are taxes levied on goods we buy and consume. When items are taxed irrespective of who buys, uses or needs them, it enormously burdens women and the poorest of the poor. For instance, household items such as pressure cookers are taxed. Isn’t the pressure cooker a necessity? It reduces fuel consumption and hours of work. Isn’t fuel saving a necessity? Another vexing example is taxing and classifying sanitary pads as luxury items. Who decides that a sanitary pad is a luxury item? Bureaucrats in the finance ministry? These are everyday examples.

    Though there are some initiatives being undertaken with regard to gender budgeting, there are more areas in finance, policy and planning which need scrutiny from a gender perspective to understand their impact on women. We cannot assess taxes only on the basis of income earned without examining other aspects of women’s lives. Men and women consume, spend and invest differently. They also have different work and responsibilities, and different levels of income, all of which significantly affects the impact of taxes and is a justification for differential taxation.

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    12 Responses

    1. Indhu: While on the whole I’m in favor of differential taxation by gender, I have to say that the first point you make in the post is the only one that really makes sense to me, and that too only to the extent that the prevalance of unpaid work means that we may need to tax women at lower rates to encourage equal participation in the labor market.

      The fact that women earn lower wages and tend to work in lower paid roles isn’t really an argument for providing a lower tax rate for women – on the contrary, it suggests that women would have a lower tax incidence anyway, since a progressive tax regime (which most countries have) would mean that they already receive a disproportionate benefit from progressive taxation. Certainly people who earn lower wages or work less well paid jobs should be taxed more leniently, but surely that should be true (and is) irrespective of whether they’re men or women.

      Similarly, even if indirect taxes are gender-biased (which I’m willing to believe, though I’d like to see more evidence) that’s a rationale for fixing indirect taxation, not for compensating indirect tax anomalies through direct tax differentials. Finally, the gender differences in household decision making points you make suggest a) deductions for children (which already exist, don’t they?) and b) special deductions for single mothers, not a lower tax rate for women generally. I’m not sure why tax breaks for child-rearing costs should translate into tax breaks for women generally.

      My own (admittedly unproven) hypothesis is that one of the subtler ways the patriarchy disadvantages women is by establishing social norms that require greater personal expenditure by women. If that’s true, and society does ‘require’ women to spend more, then a lower tax rate for women may be a way to correct that imbalance, but that’s a whole other discussion.

    2. […] Ultra Voilet from India makes a case for women to be taxed differently by the government. Posted by Neha Viswanathan Share This […]

    3. Continuing from the ‘Mixing it up’, i think this post was a refreshingly new topic. Your article does give me a structured idea about why tax must be kept differential. I had not thought about your first point, so, thanks for that thought!
      To me, the second point makes a lot of sense. Not only is it because women are usually seen in lower paying jobs, but even in similar jobs, woman are paid less. Therefore, as long as gender differentiation exists in paying them, it makes sense in being lenient to them as well.

      Your fourth point, makes the biggest sense to me.
      Many studies indicate that ,a bigger percentage of a woman’s earning, flows into the family compared to that of men -A reason why a number of poverty alleviation programmes have been directed to women. Therefore a lenient tax system would not only improve their own lives but also that of the family.

      But it remains to see whether differential tax must be applied to the higher income brackets.
      Interesting Post!

    4. I think the lower taxes for women is a type of positive discrimination. It should go on till we reach equality between men and women. I think equality will not be reached till men wouldn’t have a problem doing house work and being house husbands or doing child care.

      Equal rights for men and women should be asked for when they reach the same level. It is also an indirect way for the men to encourage girls and women to be undergo higher education and consequently take up jobs in tertiary sectors which are highly paid.

    5. @ falstaff,

      women earning lower wages, even when their tax incidence is low are being burdened through indirect taxation. Indirect taxes are not neutral and the impacts needs to be scrutinised from a gender perspective is waht I was pointing out.

      “I’m not sure why tax breaks for child-rearing costs should translate into tax breaks for women generally”.

      well women, whether they like it or not are esponsible- emotionally, physically and financially for childrearing- across the board so why shouldn’t women have tax breaks in general? the overall point is that you can’t decide tax based only the income that is earned without factoring in other disadvantages that being woman entails.
      @bombay dosti
      it was good for me to tackle a different subject, glad you found it interesting
      @ Shreya Bhandari
      yes we have to understand equality in some depth. it is not just formal but needs to tanslate substantively into wome’s lives.

    6. Indhu: Women “are responsible – emotionally, physically and financially for childrearing” only if they have children, yes? As I say above, I’m all for tax breaks for children and for single mothers. Why should women who don’t have children get tax breaks?

      The overall point is that you shouldn’t give tax breaks on something that’s correlated to disadvantage – you should give tax breaks for the source of the disadvantage itself.

      And you still haven’t given us a reason why gender-bias in indirect taxation should be fixed through gender-bias in direct taxation, instead of by correcting the gender bias in indirect taxation itself. I’m all for scrutinizing tax impact from a gender perspective. In fact, I’m suggesting that instead of providing some arbitrary compensation for unspecified and unmeasured inequalities in indirect taxation through tax breaks in direct taxation (your suggestion) we actually scrutinize and measure these alleged inequalities in indirect taxation and fix them at their source, rather than trying for a piecemeal direct tax break that is likely to be both inefficient and ineffective.

    7. To see why correcting indirect tax anomalies with direct tax breaks is a bad idea, consider women who don’t ‘work’ (meaning, of course, that they don’t work in the formal sector, and therefore pay no tax). You’d think these are the women you’d most like to help – after all they’re the ones with no financial independence and therefore likely to be the most oppressed. Yet these are precisely the women who a direct tax correction will not help at all – they won’t benefit from a direct tax break because they don’t pay direct tax, but they will continue to bear the burden of indirect tax, disproportionate not only to men but also, thanks to your new policy, disproportionate to ‘working’ women. So much for equality. What’s more, a direct tax break may actually harm these women in two ways: first, if lost tax revenues from direct tax breaks are made up through either increased indirect taxation (even assuming the increase is proportional and not gender biased – which by your own argument it could well be) or through general inflation – the burden of unequal indirect taxation on these women will actually increase [1]. Second, the probability that anything will ever be done to solve the unequal impact of indirect taxation on women will decrease, because, after all, we’re now providing women with tax breaks to make up for that issue, aren’t we? We’ve fixed the problem, haven’t we? Never mind that the people who most needed the help haven’t been helped at all.

      And that’s just the extreme case. Technically speaking, any woman whose contribution to household income relative to the average contribution of women to household incomes is lower than her share in household expenditure relative to the average share of all women in household expenditure will not be adequately compensated by a policy that uses direct tax breaks to correct for indirect tax inequalities – with the result that such a policy will only serve to perpetuate inequality, not correct it.

      And all that’s assuming that the true gender effect of indirect taxation is accurately measured in calculating the extent of the direct tax break to provide, which is almost sure not to happen if people who call themselves feminists are willing to blindly accept the sop of a direct tax break in compensation for unequal indirect taxes without thinking through the implications and impact of such a policy.

      [1] The only way this wouldn’t happen is if the direct tax break for women was entirely made up by an increased incidence of tax on men. Anyone seriously think that’s going to happen?

    8. […] Indhu Subramaniam at UltraViolet makes the case for differential taxes. […]

    9. Talk to any manager about the productivity of their women crews… As a matter of fact no budding company will employ women employees because they dont have that much fund to waste. From my perspective only 10% of the women who go to work actually go to ‘WORK’. Others are going to work just because they dont like to sit at home. And they intentionally are not ready to take any job that requires serious effort and responsibility. Ofcourse they are well educated but they have a different story to say.

      As far as *unpaid job* like parenting is concerned now a days even if the mom is not working the kid will be sent to day care or play school saying “he is too naughty at home and hard to manage”!!!

      Presicely majority of the women around the globe doesnt like to take any responsibilty and want to have fun at someone else’ cost (either father or husband) also claims all the benefits like tax rebate alimony maintenance etc.

      Men are just funding these thinking women will gain some self-esteem in the near future. Unfortunately non of the so called feminists are working on to build us women’s self-esteem self-confidence or what so ever ‘self ‘ it is and make them think that they are not beggars or refugees. They just keep saying that hey women we are helpless good for nothing creatures and we need tobe supported by men.

    10. There is a need for awareness among males of their rights. They should be encouraged to speak out against anti-male laws and norms, just as females are encouraged to do so too.

    11. before reading the reasons that you mentioned in this post, i didn’t believe that an issue can be supported in this manner also. All of them are just “nothing”, said for the sake saying something or wrote for the sake of writing something.

      according to the post,

      women are working in unpaid economy:

      If any one think doing work for her family is “unpaid work” and deserve paying separately, then what about a man’s spending on that family…. a social service, or charity work…? I am just saying they are doing for their family. for this charity work, men also need to get some concession in the tax, isn’t it? I don’t how people think, what ever wife doing is unpaid work and what ever men spending their hard earned money for the family is “his duty” and that family (especially wife’s right).

      I am sorry to say, remaining reason’s not even have worth to comment.

    12. @ Falstaff, I think the point about why employment differentials should lead to reduced rates is more a point about incentivising that category of individuals to work. It is not a coincidence that women tend to take up seasonal employment, low paid jobs etc but a consequence of the expectations imposed on them by society i.e. how you may need to quit your job / relocate when you get married, quit your job when you have kids, maintain easier work hours as compared to the husband who is always perceived as the ‘primary earner’. Allowing for differential tax rates encourages the ‘secondary earner’ to make that greater contribution to the overall income (because a rupee earned by the woman in the beneficial tax bracket is worth more than a rupee earned by the man). It is just the way the tax system tries to encourage greater income generation by women who tend to occupy the position of ‘secondary earners’.

      As for the unpaid labour argument, it may have actually come up in the context of joint income filing prevalent in coutnries like the United States where a couple is allowed to file as a single individual. A feminist argument against this kind of filing has been that it provides the deductions available to both individuals to the couple as an entity – therefore if the primary earner (perhaps the man) is in a position of generating higher income, the couple’s income is maximised by having the woman stay at home for household (unpaid) labour while the man takes advantage of the standard deductions available to the woman AND the man. By allowing differential rates to women you’re essentially saying that the rate benefit only applies if the woman herself is the income generator.

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