Chapter 4 | Page 144
Personal income tax has long played a major role in developed countries, both
as a source of government revenue and as an instrument for the redistribution
of wealth.11 In many developing countries, personal income tax has played a
much smaller part in raising revenue and reducing income inequality.12
Revenue from these taxes in most low-income countries is less than 10
percent, compared to more than 25 percent in the Organisation for Economic
Co-operation and Development (OECD) countries.13 According to the
International Monetary Fund (IMF), less than 5 per cent of the population in
developing countries pays personal income tax, while the figure in developed
countries is nearly 50 percent.14 Such a low level of personal income tax in
developing countries not only represents a missed opportunity in terms of
State revenue. Given the ineffectiveness of personal income tax regimes in
many developing countries, it also means that the effect of these taxes on
wealth redistribution and poverty reduction is minimal,15 which has an adverse
effect on the realisation of ESC rights. Clearly, this is a fundamental area of
tax policy that can have a significant positive impact on ESC rights resources,
if properly designed and implemented.
Potential revenue from personal income tax is also reduced in many
developing countries due to high levels of tax evasion and avoidance.16 While
many of the factors contributing to these distortions are often beyond the policy
capacity of individual governments, simplifying personal income tax can be an
important policy option for developing countries to increase their tax revenue.
To address these challenges, some countries have already begun to simplify
the personal income tax regime by levelling tax rate structures or by
11
Richard M Bird and Eric M Zolt, 'Redistribution via Taxation: the Limited Role of the
Personal Income Tax in Developing Countries' (2014) UCLA Law Review.
12
Ibid.
13
Michael Keen, 'Taxation and Development - Again' (IMF Working Paper No WP/12/220,
IMF, September 2012).
14
International Monetary Fund, 'Revenue Mobilization in Developing Countries' (Policy
Paper, IMF, 8 March 2011) <http://www.imf.org/external/np/pp/eng/2011/030811.pdf>.
15
Bird and Zolt, above n 11.
16
International Monetary Fund, above n 14.
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