AS per OECD latest report, taxes are among the most effective tools governments have for reducing inequalities and bringing about more inclusive growth.

“While countries do not necessarily need to tax savings more, there is a lot of room to improve the way countries tax savings,” said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration. “There is also a very strong case to be made for addressing income and wealth inequality through the tax system, notably by ensuring effective taxation of capital. Governments have an opportunity to increase both the efficiency and fairness of their tax systems, and these reports outline concrete measures to help achieve this” Mr Saint-Amans said.

Taxation of Household Savings provides a detailed review of the way savings are taxed in the 35 OECD countries and five key partner countries (Argentina, Bulgaria, Colombia, Lithuania and South Africa). It finds large differences within countries in the tax treatment of a range of assets, such as bank accounts, bonds, shares, private pensions and housing, and points out that tax rules – rather than pre-tax rates of return – are likely driving some savings decisions.

Analysis of asset-holding patterns across income and wealth levels shows that differences in tax treatment of certain types of savings often favour wealthier taxpayers over poorer taxpayers. For example, poorer taxpayers tend to hold a larger share of their wealth in relatively high-taxed bank accounts than wealthier taxpayers, who tend to hold a greater share of their wealth in investment funds, pension funds and shares, which are often taxed at lower rates.

Faced with these outcomes, the report outlines a range of opportunities for greater tax neutrality across different types of savings to foster more inclusive growth. At the same time, it recognises the case for preferential tax treatment to encourage retirement savings, in light of population ageing and increasing pressure on social security systems.

The report also finds that opportunities may exist for some countries to increase progressivity in their taxation of savings as a result of the recent move towards the automatic exchange of financial account information between tax administrations. This ground-breaking change in the international tax environment is likely to make it harder in years to come for taxpayers to evade tax by hiding income and wealth offshore – presenting a particular opportunity for countries that previously moved away from progressive taxation of capital income to reintroduce a degree of tax progressivity.