Think informal women workers don’t pay tax? Actually they pay more tax than Elon Musk…

Alex Bush Gender, Tax, Women's Economic Empowerment

The reality is that hundreds of millions of informal and unpaid women workers are paying way more than their fair share – while the super-rich avoid taxes with impunity. Alex Bush, Clare Coffey and Saleha Shah debunk some myths about tax and women’s informal work.

portraits of market trader and billionaire
Oxfam’s Davos report highlights differences in tax paid by the super-rich and most people (p26)

This year’s Oxfam inequality report – released for the annual gathering of the global super-rich and political elite at the Swiss ski resort of Davos – had a pretty simple core message: tax the rich. What is abundantly clear from the report is that tax systems across the world today favour super-rich men, who pay an astonishingly small part of their incomes in tax, and most heavily disadvantage low-income women, especially women informal workers and unpaid carers.

As the report observed: “When the rich enjoy disproportionally low tax rates on wealth, inheritance, capital gains and corporate income, this constitutes a redistribution not only from poor to rich, but also from women to men and from racialized people to white people.”

The tax burden on women

A central demand of Oxfam’s Survival of the Richest report is that taxes should fall on those with the broadest shoulders, to generate revenue for inequality-busting public spending and to rein in power and consumption. Yet it shows that, at the moment, the opposite is true. Chronic undertaxation of the wealthy (including of inheritance and capital gains) mean that the super-rich effectively pay lower taxes than ordinary people do, as the latter get hit by inescapable taxes on wages and on spending through VAT.

That hurts women, who spend greater proportions of their income on consumption and care goods. In particular, the National Women’s Law Center (NWLC) found that tax policies in the United States disadvantage low-income women, women of colour, LGBTQIA+ people, people with disabilities, and immigrants. And of course women bear the lion’s share of the unpaid care load, reducing their opportunities to earn income in the first place.

So what about informal workers?

In this blog, we want to focus on the tax injustice faced by the 1.3 billion women informal and unpaid workers. For most women in the global south, paid work means informal work, with 89% and 95% of women workers in Africa and South Asia respectively in informal employment. That informal global economy touches almost every sector, from agriculture, to apparel/garments, domestic work, construction, and mining.

And yet, there is all too often shockingly little sympathy for these workers.

In fact, the dominant narrative around informal workers sees them as tax dodgers who should be taxed  more not less. Tax in this framing is presented as a way of cleaning up and bringing order to a huge ‘problematic’ part of the economy, where workers are seen as undesirable tax evaders, a drain on society, unskilled, dirty and criminal, something to hide or even erase.

That narrative also reinforces a specific version of what work should look like, in line with Western ideas of a “model society”. This weakens public outrage at fiscal and specifically tax injustices faced by informal and unpaid workers.

Informal workers don’t pay tax? Actually, they pay lots of taxes

It’s true that informal workers typically don’t pay income tax, as their work exists outside largely outside of the regulatory framework, but it’s wrong to say that they don’t pay taxes at all.

In reality, informal workers pay significant taxes, and in fact they pay more as a fraction of their incomes than the super-rich.

Let’s start with Value Added Tax (VAT) or taxes on consumption: these taxes on the purchase of goods and services are regressive, which means they hit those living in poverty the hardest, as people with less income spend a higher proportion of their money on consumption. For example, if there’s a tax of 8% on a £1 loaf of bread, a poor and a rich consumer will pay the same amount in absolute terms: 8p. But if an informal worker earns £2 a day, they will have spent 4% of their income on tax just for this product, while a person earning £200 a day will have spent a mere .04%.

Despite this, more and more countries have started using VAT since the 1980s, meaning VAT and other consumption taxes now account for around 44% of tax revenue globally. In contrast, taxes on wealth and corporations have been in steady decline. In other words, the tax burden has more and more shifted onto “narrower shoulders”.

Regressive VAT is perhaps the most glaring example of tax injustice for informal workers but there are also a number of other formal and informal taxes that informal workers are likely to pay, such as market fees, permits, or even bribes. Some of these may go into funding local infrastructure such as public toilets or religious spaces, and some might supplement salaries of local civil servants. 

Because of these largely hidden taxes, the people who own and earn the least and face the most vulnerability often pay much more of their income than the richest. Additionally, ‘these workers do not benefit from social protection schemes they may be contributing to through indirect taxation.’ Yet, when tax cuts are given, they’re usually for income or corporation tax, so they’re of no help to informal and unpaid workers.

What’s worse, these same workers can face relentless harassment around the permits, fees, and bribes they need to pay, including the confiscation of their property. And in the context of governments being unable or unwilling to raise sufficient overall revenue to finance key public goods, it is often communities and individuals that fill the gap through informal taxes and fees. The COVID-19 pandemic has exacerbated these challenges, as many informal workers have lost their income and face increased tax obligations, which can drive them further into poverty.

Meanwhile, multi-millionaires get away with dodging their taxes. This stark contrast is illustrated in Oxfam’s Davos report by the example of Aber Christine, who sells flour at a market in Northern Uganda (see above). She makes around $80 a month in profit and, though she does not pay income tax, she pays a 40% tax rate. Meanwhile, Elon Musk pays an effective tax rate on his surging wealth of 3%! It’s time to change the story and describe Aber and her fellow informal and unpaid workers as high taxpayers!

This tax injustice looks like it will only get worse

Despite the arguments and calls for taxation of the super-rich, as we move through Covid and into further crises, it looks as if there will be more pressure to increase taxes on informal workers to raise revenues.

Experts argue the risks of increasing harassment, marginalisation and over-taxation of small informal businesses are heightened where governments face greater revenue pressures and place less emphasis on the equity and distributional implications of expanding the tax net.

Why are we facing this downward spiral? One critical reason is that women and racialized groups, especially those from lowest income groups, are excluded from tax policy-making and the institutions and organisations that oversee tax systems. To change the status quo, we need change in tax policy, but we also need change in who is deciding on tax, reining in the power that the wealthy wield over economic policy.

We need to work together to make sure informal and unpaid workers and their demands are fully represented and listened to in local, national, regional, and international tax discussions. This should centre southern feminist economic leadership.

We also need investment in women’s rights organisations and movements working on economic justice. Informal and unpaid workers must be involved – not just to demand that they pay less but to shape the whole tax system. All workers, paid or unpaid, should have the power to influence global and national tax reforms, so they can be redesigned for them.  

Tax is a feminist issue

We urgently need a tax justice agenda for informal and unpaid workers that includes:

  • Changing the direction of policy so that taxes are progressive; and adjusting tax burdens on the lowest-income earners, including by raising thresholds.
  • Considering the impact of local and informal taxes in policy design, both in terms of the amount paid, and the ways they reinforce inequalities based on race, gender, and migrant status.
  • Ensuring sufficient revenue is generated by progressive taxes, such as wealth taxes, to fund infrastructure and care services.
  • Investing tax revenue in public goods such as infrastructure and care services to create a feminist, green, and decolonial economy that works for everyone.
  • Making sure national tax revenue can be spent on local services, investment and social protection – not just on big national projects that serve local communities poorly. 

Feminist tax justice and women’s rights advocates including members of the Global Alliance on Tax Justice, are demanding change. Reforms and demands are making important gains: progress on a UN global tax convention, for example could be significant in potentially shifting power over global tax rules.

But there’s a long way to go to ensure full representation of diverse voices and to keep a clear focus on transforming the colonial and sexist nature of taxation systems. That’s why Oxfam is working with feminist partners and movements, to support the collective power of women workers in economic policy. This March, Oxfam is joining the Global Alliance on Tax Justice in campaigning under the banner of “Feminists for Wealth Taxes Now!”

As Oxfam’s Davos report spells out: “All over the world, civil society and the tax justice movement are demanding that tax systems not only fight economic inequality, but also address gender and racial justice…Tax has always been a feminist issue, and it is becoming increasingly so.

Author

Alex Bush

Alex Bush is a researcher on Valuing Women’s Work at Oxfam GB

Author

Clare Coffey

Clare Coffey is lead of the Valuing Women’s Work Workstream at Oxfam GB

Author

Saleha Shah

Saleha Shah is Regional Gender Coordinator at Oxfam Asia

Find out more about Oxfam’s vision in our website about Valuing Women’s Work. And read Oxfam’s full report for the Davos 2023 meeting “Survival of the Richest: How we must tax the super-rich now to fight inequality”. You can find a full account of how we worked out key numbers used in the report in this methodology note.

Do also check out our series of blogs for Davos. Follow us on Twitter and LinkedIn to keep up with the latest Davos content and subscribe to our monthly round-up of Oxfam blogs and research.