are subject to withholding taxes on their salaries – generally bear dramatically higher effective burdens than those in self-employment, or with non-salary income.<sup>115</sup> Among firms, there may be sharp differences in burdens based on the level of formality, or the extent to which transactions are easily tracked – as with firms that do or do not use electronic tax registers, for example.<sup>116</sup> Among property tax payers, the failure to regularly update property valuations – and the frequently high levels of subjectivity in the valuation process – can result in hugely disparate assessments for similar properties, and in many properties being completely outside the tax net.<sup>117</sup> While difficult to document precisely, it is widely felt that those with strong connections within government and the administration are better able to minimize or avoid taxes.

An important source of such horizontally inequitable tax burdens may also lie in the international tax system. Firms that operate across borders may be better able to minimize their taxable profits through the use of complex tax structures, while national firms are less able to do so, while some sectors may also offer greater opportunities for evasion and avoidance.<sup>118</sup> Most writing about international tax evasion and avoidance has focused on its aggregate impact on revenues, and these continue to appear to be large in some sectors, led by the extractives sector. That said, the impact on competition across firms may be similarly important. The same is true of individuals, with wealthy individuals more able to exploit international opportunities to move wealth offshore to avoid local taxes. While precise figures are impossible to obtain owing to the inherently secretive nature of tax evasion, recent estimates suggest that 30 percent or more of financial wealth in developing countries is held offshore, free of taxes. This wealth is presumed to be held almost entirely by the very wealthy, and thus presents a major loss of revenue and of progressivity for developing country tax systems.<sup>119</sup> In some cases, inequities may arise from national policy choices. At the national level, tax incentives and exemptions can generate substantial inequities across different businesses – with, in some cases, businesses in the same sector paying significantly different tax rates. This is a particular risk where government officials enjoy significant discretion in granting exemptions.<sup>120</sup> Special tax regimes granted to some extractive companies are a particularly prominent example.<sup>121</sup> However, such inequity is also possible where exemption regimes appear relatively transparent and rule-bound. Such regimes might, for example, create benefits for foreign companies over local companies. Alternatively, where incentives are time-bound, some firms may manage to extend

> 115 Bird, R., & Zolt, E. (2005). Redistribution via taxation: The limited role of the personal income tax in developing countries. _International Tax Program Paper 0508_ . Toronto: Joseph L. Rotman School of Management.

> 116 These patterns are more likely to vary by country. Mascagni and Mengistu (2016) offer an example of an effort to estimate this variation in Ethiopia. Mascagni, G., & Mengistu, A. (2016). The corporate tax burden in Ethiopia: Evidence from anonymised tax returns. _ICTD Working Paper 48_ . Brighton: International Centre for Tax and Development.

> 117 Piracha, M. & Moore, M. (2015). Understanding low-level state capacity: Property tax collection in Pakistan. _ICTD Working Paper 33_ . Brighton: International Centre for Tax and Development.; Khan, A., Khwaja, A., & Olken, B. (2016). Tax farming redux: Experimental evidence on performance pay for tax collectors. _Quarterly Journal of Economics_ , 131 (1):219-271.

> 118 This is a possible explanation, for example, for evidence that large firms pay lower effective tax rates than mid-sized firms in Ethiopia. Mascagni, G., & Mengistu, A. (2016). The corporate tax burden in Ethiopia: Evidence from anonymized tax returns. _ICT Working Paper 48_ . Brighton: International Centre for Tax and Development.

> 119 Zucman, G. (2014). Taxing across borders: Tracking personal wealth and corporate profits. _Journal of Economic Perspectives_ , 28 (4):121-148.

> 120 Klemm, A. (2009). Causes, benefits and risks of business tax incentives. _IMF Working Paper WP/09/21_ . Washington: International Monetary Fund.

> 121 Prichard, W., & Jibao, S. (2010). Building a fair, transparent and inclusive tax system in Sierra Leone. Freetown: Christian Aid Sierra Leone.

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