Progress in reducing poverty on a global scale will be set back decades without taxing and transferring rapidly accumulated wealth into social support measures, according to the charity's third Commitment to Reducing Inequality Index, ranking governments on taxation, social spending and labor standards. Tax collections measured against rates declined by 6.3%, according to the report.
During 2020 and 2021, tax systems increased overall inequality within countries by around 1.5% on average, according to the report, which said 97 national tax systems increased inequality domestically, while 63 systems reduced inequality. To measure inequality, Oxfam uses the Gini coefficient, which shows how much an economy's income distribution among individuals deviates from a perfectly equal distribution, according to the World Bank, from which data was drawn. Ireland, Kenya, Tanzania, Lesotho and Argentina were among the countries the report found had made most progress toward reducing inequality domestically.
Australia, Lesotho, South Africa, China, Canada, Kiribati, New Zealand, South Korea, Djibouti and Germany ranked as the 10 best countries on the index's tax pillar. The pillar indexed countries based on three equally weighted factors: tax policy, including the tax burden's progressivity and the existence of harmful practices that undermine collections domestically and internationally, the success of tax collections and the impact of taxes collected on reducing income inequality.
Australia's ranking came from maintaining tax collection levels and taking steps in 2021 to target corporate tax avoidance, including finalizing guidance on transfer pricing for intangible assets and removing a preferential offshore banking unit regime deemed harmful by the Organization for Economic Cooperation and Development. China reduced its overall value-added tax rate by 3% and its VAT on food products specifically, the report said.
Lowest-ranked on the index in order are North Macedonia, the Bahamas, Serbia, South Sudan, the Occupied Palestinian Territory, Liberia, Vanuatu, Panama, Democratic Republic of Congo and Oman. Most have either no income taxes or regimes with very low and flat rates, it said.
Morocco and St. Vincent and the Grenadines both saw dramatic rises on the tax index due to introducing anti-avoidance rules and repealing tax practices deemed harmful by the OECD or European Union. Bhutan created a VAT regime exempting food and small traders, while Albania and Jamaica both made VAT regimes less regressive as well.
Malta and Guyana ranked among the tax index's furthest fallers due to collapses in tax collection and productivity, while Afghanistan and Yemen had similar results exacerbated by armed conflicts. Armenia, Barbados, and Croatia each fell in the rankings after cutting taxes on the richest individuals. Among the lowest scores on harmful tax practices went to Hong Kong, Barbados, Singapore, Cyprus, Luxembourg, Malta and the Netherlands. Angola and Japan made VAT regimes more regressive, it said.
The U.S. showed little change on the tax index, ranking 74th this year after placing 76th in 2020.
"Ultimately, inequality is not inevitable," Max Lawson, head of inequality policy at Oxfam International, told Law360 on Monday. "The level of the gap between the rich and the poor countries is a matter of policy choice,"
The average corporate income tax rate fell by 0.4 percentage points, as 22 countries cut rates. Tunisia cut its rate by 10 percentage points, the most of any nation. Argentina was among five nations to raise its corporate income tax rate, hiking it by five percentage points, followed by Uzbekistan, Turkey, Japan and Germany.
For multinational corporations, Oxfam recommended reducing harmful tax practices and boosting anti-tax avoidance measures. Improved exchange of information on offshore wealth holdings, more efficient standards for country-by-country reporting by corporations and a global asset registry were among the other advised tax policies aimed at businesses.
For poverty reduction, the charity recommended exempting basic food products from VAT and sales tax, while setting higher thresholds to exclude more small traders. Raising tax rates on corporate income, top individual earners, capital gains, property, inheritances and financial transactions were also recommended.
Latin America's political situation offers the most promising chances for progressive tax measures, Lawson said. Argentina and Bolivia enacted wealth taxes on the highest income brackets, while Costa Rica raised its top marginal rate on individuals by 10 percentage points.
--Editing by Roy LeBlanc.
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