Studies show that sound progressive taxation or the imposition of higher taxes on high-income earners, can secure enough funds for social development amid the widening gap between income classes in many countries and the ‘more unstable’ world.
The International Monetary Fund (IMF) is seeing opportunities for countries to make taxes imposed on rich individuals more efficient and channeled towards creating more jobs.
IMF managing director Kristalina Georgieva made mention of such during her closing remarks on Friday, at the conclusion of the Third Meeting of the G20 Finance Ministers and Central Bank Governors in Rio de Janeiro, Brazil.
Georgieva said IMF studies show that sound progressive taxation can secure enough funds for social development amid the widening gap between income classes in many countries and the “more unstable” world.
Progressive taxation imposes higher taxes on those who earn higher incomes.
Loopholes
While the Philippines already implements such taxation, the IMF said governments may find loopholes and better ways to gather and convey related data and adjust taxes on capital income to more reasonable, fair rates.
“The IMF stands ready to support efforts to further strengthen international tax cooperation, where we have long stressed the need to better reflect the interests of low-income countries,” Georgieva said.
The Philippine law exempts income tax on individuals earning P0 to P250,000 annually but imposes 35 percent tax on those who earn at least P8 million.
Rationalized taxes
Meanwhile, the Department of Finance (DoF) proposes rationalized taxes on passive income and financial instruments under Package 4 of the Comprehensive Tax Reform Program.
The DoF wants a 20 percent standardized interest income tax and a 10 percent dividend income tax starting 2028. The government agency also proposes a reduction in stock transaction tax from 0.5 percent to 0.1 percent by the same year.
Georgieva said low-income countries must continue to restructure debt programs and mobilize funds toward critical sectors to protect communities, especially the poor, against global supply shocks.
“Countries need to implement reforms that reinvigorate growth and jobs, develop domestic financial markets to improve access to finance, and mobilize fiscal revenue equitably and sustainably,” she said.
Projected current account deficits
If the global economy slows further, Georgieva said low-income countries might need $820 billion over the next five years to cover their projected current account deficits and external debt repayments alone.
She added they might seek $500 billion of external financing to catch up with advanced economies.
The IMF said developing countries must create more jobs to accelerate economic growth, noting that not doing so could widen income inequality by 20 percent over four years or more.
“This is a moral and ethical concern. An unequal world is a discontented world that may not be up to the task of adapting to the unstoppable transformations underway,” Georgieva said.
The IMF said governments must tap more human resources to help fast-track global transition to renewable energy and other sustainability projects.
“Interdependent challenges — high debt, fragmentation, and complexities in navigating the digital and green transitions — are holding back greater prosperity,” Georgieva said.
The IMF kept its global economic growth outlook at 3.2 percent this year and 3.3 percent in 2025.
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