How Tax Reform Can Help Women in Asia and the Pacific

Providing tax incentives for women-owned or led businesses supports their growth and survival. Photo: ADB
Providing tax incentives for women-owned or led businesses supports their growth and survival. Photo: ADB

By Hannelore Niesten, Keiko Nowacka

Gender-focused tax reform can be a powerful tool to empower women, promote gender equality, and mitigate the disparities heightened by the COVID-19 pandemic in Asia and the Pacific.

In the aftermath of the COVID-19 pandemic, governments in Asia and the Pacific lack resources to invest in gender equality and women’s empowerment. The progress and achievements women have made over the past five decades are at risk of being reversed without increased public investments. To address this challenge, countries must reform their tax systems. 

Our research has found biases in tax laws that put women at a disadvantage and that tax reform can be a powerful response to this problem. 

Explicit biases in taxation that discriminate against women can take several forms. For example, a requirement to combine a woman's income with her husband's can subject her to higher tax rates as a secondary earner. This approach discourages female labor force participation and hinders women’s entrepreneurship, ultimately reinforcing traditional gender roles. 

Malaysia and Hong Kong, China, allow for individual taxation, unless spouses choose joint assessment which recognizes individual economic contributions. 

Tax provisions that may appear gender-neutral but actually have negative effects – “implicit biases” – also arise from gender inequalities in labor markets and social norms. These biases can exacerbate gender disparities, and become evident in the allocation of tax benefits, where work-related tax benefits often favor men engaged in formal employment. 

Additionally,  unequal treatment of assets tends to favor traditionally male-owned assets. Women, particularly those from lower-income groups, are disproportionately affected by a variety of tax policies.

On the other hand, tax policy can also be a lever for promoting gender equality. Several countries in Asia and the Pacific have taken proactive steps to promote gender equality through explicit preferential tax regimes. These regimes offer targeted tax incentives to specific groups like single women, working mothers, and female entrepreneurs. 

Some countries, including Bhutan, India and the Republic of Korea have also reduced or eliminated taxes on feminine hygiene products to support women's health. However, there is a need to evaluate the impact of these preferential tax regimes on women to establish whether these benefits effectively reach and benefit those who need them most – women from low-income backgrounds

Women, particularly those from lower-income groups, are disproportionately affected by a variety of tax policies.

 Strategic tax policies play a crucial role in addressing widening gender gaps in Asia and the Pacific. Here are some possible avenues for improvement:

  • Identify and remove explicit biases against women. Some countries like Brunei Darussalam, Cambodia, Indonesia, and Malaysia explicitly grant benefits based on gender, and such discriminatory elements must be rectified.
  • Reducing the tax burden on low-income earners and increase tax rates for high-income individuals. This can achieve gender equality in taxation by shifting tax revenue distribution to those who are more capable of paying, often men. For example, India imposes additional surcharges on high incomes.
  • Offer tax support for childcare services within individual income taxes to create more opportunities for women to join and remain in the workforce. This is already being done in Cambodia, Republic of Korea, Kyrgyz Republic, Malaysia, and People’s Republic of China. Similarly, tax support for education expenses, provided by countries like Armenia, Bhutan, Papua New Guinea, Pakistan, and Sri Lanka, can enhance access to healthcare and education, leading to increased female labor force participation.
  • Create preferential tax regimes for small businesses that employ a significant number of women. This is being done in Malaysia, Nepal, Sri Lanka, and Uzbekistan, which also take into consideration overall revenue goals. Such policies can stimulate economic growth and empower women entrepreneurs, contributing to inclusive prosperity. Furthermore, countries like Pakistan, Bangladesh, Nepal, and Sri Lanka provide tax incentives specifically for women-owned or led businesses, supporting their growth and survival and addressing the low share of women-owned businesses in the region. To accurately evaluate the impact of tax incentives on enhancing female employment and entrepreneurship, it is imperative to collect comprehensive data on these measures. 

Applying a gender lens to tax policy– which involves analyzing and considering the differential impacts of tax measures on men and women, addressing gender-specific economic disparities, and aiming to promote gender equality – can improve the situation of women vis-à-vis decision-making within households, labor market disparities, and women’s increased vulnerability to poverty. Simultaneously, it enhances domestic resource mobilization to finance essential public goods.  

 Governments in the region should consider both the design and potential impact of their tax policies and reforms on women to accelerate gender equality.