Case Studies

A Ghanaian NGO called the Integrated Social Development Centre (ISODEC) had worked on social justice and human rights issues since its start in 1987. ISODEC recognised the importance of monitoring government budgets as part of this agenda so it set up the Centre for Budget Advocacy (CBA). CBA conducts research and analysis of the budget and the economy, including examination of the effects of revenue policies on the poor, at both the national and local levels. CBA also conducts training on budget issues for government officials and civil society organisations in Ghana and neighbouring countries. CBA has organised public meetings in each of Ghana’s 10 regions to solicit views from citizens about the budget, to create awareness of the budget as an important development tool, and to foster a budget dialogue among different stakeholders in the country. Tax work has been a key component of CBA’s work since it was founded. One of its first tax-related activities was the publication of a ‘Taxation in Ghana Made Simple’ guide, which was widely disseminated among civil society organisations engaged in budget advocacy and analysis as well as to ordinary citizens.The guide is now used by the Ghana Institute of Management and Public Administration as a textbook for a first degree course in Taxation. CBA also began including analysis of the government’s revenue proposals in its reviews of the government’s annual budget submission. For instance, in 2005, CBA commented on the reduction in corporate income taxes and shortcomings in tax administration, which force the country to rely heavily on aid. CBA has criticised the government for continually reducing the income tax and relying more heavily on regressive consumption taxes. Reference no.22

India has in recent years made a certain level of progress in granting basic rights and entitlements to its citizens. Recent examples include the ‘Right to Education’ agreed in 2010, and the ‘Right to Food’ which was discussed in 2010 in the Indian Parliament. Poor people in India discovered that they are paying taxes on everything from matchboxes to rice, and with the slogan ‘we will know, we will live’ they demanded to see the government’s accounts. Initially the people were declined this access to financial information, but during the 2005 campaign for the ‘Right to Information’ tax campaigners seized the opportunity to demand clarity on government income and expenditure. With the passing of the Right to Information Bill, citizens in India are now entitled to know how their tax money is spent and they are using this knowledge to challenge existing tax policies.The central government’s tax system in India has a plethora of exemptions that have resulted in huge amounts of revenue foregone by the government every year – in 2009/10 this was estimated by the central government’s Ministry of Finance to reach more than 5 trillion rupees (approximately US$110 billion) or 8 per cent of India’s GDP. Because of the increased transparency that the Right to Information brought about, Indian tax campaigners are now able to call for all tax exemptions to commerce and industry to be justified and for those exemptions that cannot be justified to be withdrawn. Reference no.20

The Mponela to Ntchisi road built with government funds from 2005 to 2007 was the first major road built by the government using domestic revenue rather than external financing. The road from Ntchisi connects to the M1 at Mponela. Mponela and Ntchisi are districts that have a high level of agricultural activities and the access to the markets through the M1 has been made easy. Donors had refused to fund the road, arguing that it was not an economic priority. However, the government viewed the road as an important social service that would enable people to travel in the rainy season and farmers to more affordably travel to the market to sell their goods. Because the government used the country’s own domestic resources, this difference of opinion did not matter – they did not need any permission to build this road. Moreover, this road was built faster than other roads financed through donor aid and loans, such as the Chitipa to Karonga road. Because the resources were already there, the authorities had greater flexibility to get the road constructed more quickly. The road will also make it easy for locals to access quality healthcare from the referral Kamuzu Central Hospital in the capital city of Lilongwe. Reference no.23

Latin America is a region with an appallingly poor tax record, extremely low levels of tax collection (on average around 16 per cent of GDP) and regressive tax systems. Guatemala is one of the region’s worst performers. According to the Guatemalan tax authority, the country collected only 11.3 per cent of its GDP in tax in 2008. One reason for its extremely low tax collection is the country’s generous tax incentives. Since legislation was passed in 1989, companies that qualify for ‘maquila’ status are exempt from import duty, income tax, taxes on the repatriation of profits, VAT, asset taxes and municipal taxes. The term maquila refers to the textile sector, but Guatemala’s legislation has been repeatedly expanded, meaning that many more companies benefit from concessions. While the benefit is supposed to be temporary in nature – for example income tax exemptions are for 10 years – the practice prevalent in Guatemala is for businesses to close and then reopen with another address.This way they can apply again for exempt status. These tax concessions have a huge fiscal cost.The tax authorities calculated losses under the maquila legislation as reaching US$524 million in 2005.This represents a huge chunk of Guatemala’s tax take – 15.9 per cent of total tax collected that year.The practice of gathering and publishing this data has since been abandoned, but currently costs would be much higher as a law modifying the maquila regime was adopted in 2004. It has allowed many more companies to be able to apply for maquila status and benefit from the exemptions. Companies qualifying as maquilas include Colgate Palmolive C.A., Kellogg C.A. and Nestlé Guatemala as well as many other well-known, national firms. A Guatemala CSO, CIIDH, has been monitoring the tax issue and advocating for tax reform for a while. It now says…

The Philippines In the early 1990s, the Filippino Freedom from Debt Coalition (FDC) protested against the Philippine government’s plans to expand VAT on a range of items, including on pesticides, which would have raised production costs for small farmers who were powerless to pass on the burden to traders and millers.9 Citizens argued that the VAT violated the Philippine constitution, which states that ‘congress shall evolve a progressive system of taxation’ (Article VI, Section 28). However, despite a strong campaign against the tax, the VAT law was passed in Congress. Initially the FDC’s focus was mainly on the debt problem and how the government should address it in a just and efficient manner. But the introduction of VAT, which was in response to IMF, World Bank and Asian Development Bank loan conditions, triggered the FDC to get involved in tax campaigns – as they saw that the unjust tax and the debt problem were inseparable. The FDC launched a Citizen’sTax Reform Seminar, and since then has been actively involved in engaging the government in tax reform campaigns. Sierra Leone In 2010, following the implementation of a GST in Sierra Leone, a broad range of civil society groups, including networks and coalitions (from health and agriculture to animal welfare, education and mining), met to challenge the imposition of the GST as a regressive government policy and to plan tax advocacy and research.The forum developed and published the ‘Freetown Declaration onTax and Development’.10

The Women’s Budget Initiative (WBI) began in South Africa in 1995, soon after the country’s first democratic elections. It engaged in research, training and advocacy focused on the gender impact of government budgets. In its first year, the WBI examined four areas – housing, education, welfare and work – as well as the broader issues of public sector employment and taxation. The WBI analysis highlighted South Africa’s shift from direct to indirect taxation and the implicit gender bias of this shift.The regressive nature of the indirect tax bears disproportionately on women, precisely because the majority of the poor are women. The analysis also examined the impacts on women of a range of other types of tax and recommended that government tax data include gender breakdowns to facilitate more sophisticated analyses of the gender impact of taxation. In the late 1990s, the government followed some of the WBI recommendations and published the number of male and female taxpayers who submit returns.The WBI expanded its work over the years to encompass all sectors of the budget. In its fifth year, the WBI focused on tax issues, conducting a gender analysis of South Africa’s customs and excise taxes and examining gender issues in relation to local government revenue. In some cases WBI’s analyses led to tangible policy results on tax issues. For instance, pressure from the WBI and other groups led the government to remove the VAT on paraffin, which is consumed heavily by the poor – this had a positive impact on women in particular, given that there are more women than men among those living in poverty and paraffin is largely bought by women. Reference no.14

Tax collection in Brazil has been increasing and Brazil’s tax take now rivals that of developed countries. However, research by both government and civil society shows that the poor pay substantially more of their income in taxes than the rich. It is estimated that very poor families – those earning only up to two minimum salaries a month – spend around 48.8 per cent of their income on taxes. Richer families – those earning more than 30 minimum salaries – are estimated to spend only 26.3 per cent of their income on taxes. Brazil’s income tax is a key part of the problem.Tax concessions are common and the income tax burden on the richest has actually been reduced in the last decade. Various reforms have also brought in new tax breaks for companies. In 1995 the government passed a law reducing the rate of corporate tax from 25 per cent to 15 per cent as well as bringing in a number of exemptions from corporate income taxes. Brazilian civil society organisation (CSO) INESC has calculated that the amount of tax revenue foregone as a result of these generous tax concessions to businesses is around US$15.5 billion annually. In addition, the 5,000 richest families in Brazil own property worth an estimated 40 per cent of the country’s gross domestic product (GDP), yet property taxes continue to be neglected as a viable – and equitable – source of tax revenue. Progressive tax reform in Brazil is long overdue. Reference no.11

Bolivia’s oil and gas industry is the most dynamic sector of the Bolivian economy and receives by far the most foreign investment. However, Bolivia has struggled to benefit from its vast underground wealth since the sector was privatised in 1996 as part of its structural adjustment reforms. With privatisation, the royalties for the vast majority of companies were lowered from 50 per cent to only 18 per cent.There was great national concern over the reform. Research showed that the government was capturing less and less revenue from the sector (37 per cent of the turnover in 1999 was reduced to 27 per cent in 2004), in a context of huge increases in investment, production and exports with corresponding increasing prices. Civil society organisations such as the Centre for Labour and Agricultural Development (CEDLA) took the lead in researching and educating the population about the impact of the reforms, which contributed to popular discontent and a series of mobilisations and protests led by indigenous groups. As a result of the pressure, the Bolivian Congress finally passed a law in May 2005 which provided – among other things – for a new royalties and tax structure on oil and gas extraction. All reserves became subject to the 18 per cent royalty rate, as well as to a new direct tax of 32 per cent on the value of all oil and gas production.The reforms to the sector since 2005 have generated a huge increase in revenue for the Bolivian government (from an income of around US$173 million in 2002 to an estimated US$1.57 billion in 2007). As a result, the Morales government has increased spending on social programmes.Three major cash transfer programmes have been developed: an expansion of public pensions to relieve extreme poverty among the elderly; a grant for poor families…