Defending Dignity A Manual for National Human Rights Institutions on Monitoring Economic, Social and Cultural Rights EXERCISES The aim of these exercises is to calculate whether tax rates are progressive or regressive. Compare two families where the head of the household of each family pays taxes on the entire income of their respective households. Family A, has a total annual income of $150,000, while Family B has a total annual income of $9,000. Family A spends $40,000 of their post-tax income every year on items consumed in their household. Meanwhile, Family B spends all their remaining post-tax income on the consumption of basic goods and services (e.g. food, water, schoolbooks, transport). 1. Referring to the income tax rate in your country, calculate the annual income tax each family would pay, and how much income they would have remaining? 2. The Government decides to impose a value added tax (VAT) of 15% on all household consumables, with no exemptions. Now calculate from the remaining (post-tax) income that each household would pay in VAT as a percentage of total income? What conclusions can you draw? 3. How much would each family pay in total (income and consumption) taxes as a proportion of their pre-tax income? Compare the two. 4. Now, let’s say Family A hires a tax accountant, who is able to shift a portion of the family’s tax liabilities overseas. As a result of this tax avoidance, only $100,000 of the family’s income in the country is reported to the tax authorities. Repeat the calculations to determine the amount each family would pay in taxes as a proportion of their pre-tax income. What percentage of their real income does Family A effectively pay? What amount of income tax do they pay as a percentage of their overall real income? 5. How would you say this tax system (income and consumption) affects both families? What if the income rate of the top brackets was decreased and the VAT rate was increased without exemptions? 6. What general or preliminary conclusions can you draw from this simplified exercise? In particular, how does the tax system affect each family differently? 7. Can you distinguish from these numbers who benefits? What else would we need to know to determine whether the tax system is equitable or not? REFERENCES AND FURTHER READING Some of this chapter is based on A Guide to Tax Work for NGOs, published by the International Budget Partnership in 2010. The following references are also recommended for further reading: Christian Aid (2011), Tax Justice Advocacy: A Toolkit for Civil Society Balakrishnan R., Elson, D., Heinz, J. and Lusiani, N., Center for Women’s Global Leadership (2011), Maximum Available Resources and Human Rights: Analytical Report Balakrishnan, R., Elson, D. and Patel, R. (2010), “Rethinking Macro Economic Strategies from a Human Rights Perspective” in Development, Vol. 53, No. 1, 27-36 Lahey, K. (2018), “Gender, Taxation and Equality in Developing Countries”, published by UN Women Saiz, I. (2013), “Resourcing Rights: Combating Tax Injustice from a Human Rights Perspective”, in Nolan, A (ed.), Human Rights and Public Finance UN ESCAP (2017), “Taxing for Shared Prosperity”, Policy Brief No. 46 118