This toolbox section is part of the toolbox: Public Service Accountability

PSA - Accountability in fair tax generation

Taxes pay teachers. Taxes train nurses. Taxes maintain roads, deliver medicine, and provide clean water. Tax revenue is the most important, sustainable and predictable source of public finance for almost all countries. 

Yet the wealthiest people and companies often pay the least tax. Many multinational companies based in developed countries have been found to use tax havens and tax loopholes to reduce the tax that they pay on their developing country operations to really low levels.

The people most affected by this issue are often not aware of their rights, or how to claim and defend them. Participatory tools can help empower communities to reflect, and act, for their rights, calling on governments to take action to ensure that everyone pays their fair share of tax and that the money raised is used well.

Understanding tax

Most taxes are collected at the national level in the forms of consumption tax or income tax. Consumption tax (VAT - value added tax) is a percentage added to the price of goods and services. Personal income tax is deducted from salaries and paid to the national government by employers. VAT is a regressive tax, because the rate is the same for all consumers, regardless of how much money they have (so it’s harder on the poor). Governments can increase the revenue base in a just and democratic way through progressive tax reforms so that people earning higher incomes pay a larger share of their income in tax than those on lower incomes.  

In many countries, local government also has a mandate to collect taxes. Examples of taxes collected at local level include: levies on resources such as charcoal or river sand, fees or licenses for shops and market stalls, land application forms and permits for mining, and property tax from small landowners and companies. 

People are often reluctant to pay the taxes due because they feel the tax collectors are dishonest, the rates are too high, or that the money will not be spent well. In many cases, people say they would be prepared to pay more if the tax collection system were fair and resulted in improved public services.

Participatory tools to support accountability in fair tax generation include:

  • The tax stones - to build understanding of how tax is collected and spent
  • Public service map - to analyse and prioritise the provision of local public services
  • Leaky pot - to build understanding of different types of lost government revenue, through tax avoidance and corruption.

References

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