CROSS-COUNTRY RESEARCH ON TAX POLICY AND INEQUALITY
34 evasion is also an issue that concerns the informal sector, which makes a large contribution
to GDP but a very small contribution to tax revenue. To combat international practices of tax evasion, multilateral cooperation is required,
involving as many countries as possible. One way to do this to encourage implementation of the action points relating to transfer pricing, the digital economy and the exchange of
information contained in the OECD BEPS Action Plan. However, despite its comprehensive nature and the wide support it has gained from non-OECD countries, the Action Plan as it
stands does not do enough to counter tax evasion in developing countries. By involving developing countries more in their formulation, future action plans will be more legitimate and
will win greater support, making them more likely to succeed.
3.2 Policy recommendations
Based on the research undertaken for this paper, the authors make the following recommendations:
• In terms of revenue performance, tax revenue potential should be maximized so that
public and social spending can be increased to help reduce inequality. They should not rely heavily on indirect taxes for their revenues, due to their regressive nature. For
personal income tax, compliance by self-employed individuals needs to be improved, rather than continuing to rely on the PAYE system.
• The highest marginal rates for individual taxpayers need to be raised to strengthen the
progressive nature of the countries’ personal income tax systems. At the same time, the highest marginal levels of income need to be reduced.
• Corporate tax rates are relatively high and need to be reviewed. This is important to
prevent capital shifting to other countries where rates are lower. •
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• Personal income tax systems should be based on individual tax units rather than on
family units so that women are not adversely affected by higher marginal tax rates.
