Part III Assessing resources However, consumption taxes are usually regressive (and so do not help in tackling inequality) because poorer households and individuals end up paying a higher percentage of their income on the goods and services that carry this tax, compared with wealthier households and individuals. Women are also typically affected more by consumption taxes, as they spend a higher proportion of their incomes on goods for the household and family due to social norms around caring responsibilities. For example, the graph below shows the distributional effects of consumption tax in Ireland in 2006. The poorest 10% of the population spent 14.49% of their income on VAT, while the richest 10% spent only 6.83%. 16% 14% 12% 10% 8% 6% 4% 2% 0% 14.49% 11.97% 11.80% 11.22% 11.76% 10.61% 10.80% 10.58% 9.92% 6.83% Bottom 2 3 4 5 6 7 8 9 Top Source: The distributional impact of Ireland’s Taxation System (Barrett and Wall, 2006) This type of tax system is unlikely to be pro-poor or pro-gender equality. When countries rely heavily on VAT as a major source of tax – and at the same time offer tax breaks to wealthier individuals and businesses, turn a blind eye to tax evasion, or don’t take strong efforts to raise taxes on wealth, property, investment dividends etc. – this raises red flags that suggest the State is not complying with the principle of non-discrimination. 11.4.3. Corporate tax Corporation tax is a direct tax imposed on corporations rather than people. It can be imposed on both domestic entities and foreign entities operating and earning profits in a country’s territory. Corporation tax is a very important revenue source, especially for many developing countries. The traditional economic argument is that lowering the tax burden on companies, helps attract and retain investment and encourages entrepreneurial activity. Often, this is done by lowering the corporate tax rate, or by granting tax incentives, concessions and exemptions for corporations. This explains why in many countries the ‘statutory’ or official corporate tax rate is much higher than the ‘effective’ tax rate (the rate corporations actually pay). This view of corporate taxes is increasingly being questioned. Many countries which have dramatically cut corporate tax rates have not seen corresponding benefits in economic activity. Certainly in many countries declining corporate tax rates have correlated with higher levels of inequality. The potential benefits and detriments of these tax breaks need to be carefully considered, as such policies may deprive countries of potential resources for realizing human rights. In some cases, the informal economy (e.g. home-based workers and market vendors) is the focus of efforts to ‘crack down’ on businesses not paying tax. The gender and human rights implications of this need to be carefully considered. The informal economy is often dominated by women because of the unequal opportunities they have to enjoy their rights to education and decent work. In fact, because they are operating informally, small businesses or traders in the informal economy may pay more tax because do not benefit from the tax exemptions or lower rates that larger more ‘official’ businesses can take advantage of. They have to pay full VAT on all the products they buy to sell or make their products, for example. From a human rights perspective, it would be preferable to focus on the various ways large multi-national corporations avoid taxes in the countries where they operate. Chapter 11: Analysing resource mobilization | 115