Taxing Inequality: How Colombia Innovates for Gender Equity in Fiscal Administration

Colombia’s tax authority, DIAN, partnered with the World Bank to integrate gender-focused analysis into tax systems, uncovering significant gender disparities in income and wealth. Using innovative methodologies and policy reforms, DIAN aims to promote equitable fiscal policies and address structural inequalities.

In collaboration with the World Bank’s Global Tax Program, Colombia’s National Tax and Customs Authority (DIAN) embarked on an ambitious project to integrate gender-focused approaches into tax administration. This initiative, part of the Integrating Gender Equality into Tax Reform project, was catalyzed by the 2022 Colombian Tax Reform. The reform empowered DIAN to conduct gender-specific studies and analyze tax data with a focus on gender disparities. Supported by experts including Luis Fernando Gamboa, Luis Carlos Reyes, Ana Maria Tribin, and Hitomi Komatsu, the initiative has provided valuable lessons for tax authorities worldwide while laying the groundwork for more inclusive fiscal policies.

Innovating Taxpayer Data Classification

To overcome challenges posed by limited inter-agency data sharing, DIAN devised innovative methods for identifying the sex of taxpayers. Initially, the organization relied on an agreement with Colombia’s National Civil Registry to validate taxpayer information. However, privacy concerns and a lack of a comprehensive legal framework restricted this collaboration. In response, DIAN developed a three-step methodology to classify taxpayers’ sex. First, it merged taxpayer and pension data using national ID numbers, successfully linking 42.8% of individuals. Second, a rule based on ID numbers issued before 2000, which encoded sex within the numbering system, was applied, adding 34.6% more classifications. Lastly, a name-based algorithm was introduced for the remaining cases, assigning probabilities of male or female classification based on name patterns. This system achieved a 95% accuracy rate, though a small fraction of taxpayers remained unclassified.

Addressing Sensitivities in Data Collection

To further enhance its dataset, DIAN encouraged voluntary self-declaration of sex in tax returns starting in 2022, with options including male, female, non-binary, and transgender. Despite this effort, only one million out of 5.4 million taxpayers opted to disclose this information. Concerns about the sensitive nature of these questions, especially during in-person interactions, led DIAN to discontinue voluntary self-declarations in tax registrations by 2024. Instead, sex data for new registrants began being retrieved from identity documents under a restrictive agreement with the Civil Registry. However, the agreement's limitations such as restricted access and individual validations present ongoing challenges. This experience underscores the complexities of collecting sensitive demographic data while respecting privacy and societal sensitivities.

Unveiling Gender Disparities in Income and Wealth

DIAN’s analysis of disaggregated tax data has shed light on significant gender disparities in Colombia’s income and wealth distribution. Women accounted for 28.2% of the top-income earners, a figure that aligns with global trends of underrepresentation among high-income groups. For example, women comprise just 11% of the top 0.1% of income earners in the United States and 20% in Spain. In Colombia, disparities increase at higher wealth levels: 45.7% of the top 1% are women, but the proportion drops to 30% for the top 0.01%. Similarly, income inequality is evident. Of the top 5% of income earners, 60% are men, and this figure rises with higher income brackets, reaching 76% among the top 0.01%. These disparities highlight structural barriers to gender equity in income and wealth accumulation, emphasizing the need for gender-sensitive fiscal policies.

Pioneering Gender-Sensitive Tax Reforms

To address these inequalities, DIAN established the Unit for Differential Focus and Gender (PLURAL), tasked with promoting gender-sensitive tax policies and identifying biases in the tax system. PLURAL’s reports analyze both explicit biases, where laws treat men and women differently, and implicit biases, rooted in broader socioeconomic patterns. For instance, women often benefit less from deductions tied to wealth, such as capital gains, but gain more from policies targeting childcare and disability support. This nuanced understanding of gender dynamics in taxation is crucial for designing policies that reduce structural inequalities. Additionally, PLURAL has expanded its scope to include sector-specific studies, aiming to understand how different industries impact men and women differently.

Charting the Path Forward

The challenges DIAN encountered highlight the importance of institutional commitment, robust data-sharing frameworks, and accurate methodologies. The 2022 Tax Reform’s legal mandate and leadership from DIAN’s former Director General were pivotal in creating the institutional strategy for these efforts. However, limitations in the data-sharing agreement with the Civil Registry remain a significant hurdle. The reliance on name-based algorithms, while effective in many cases, introduces the risk of errors, particularly for individuals with uncommon or gender-neutral names. To mitigate these issues, DIAN plans to expand its analysis to include other tax regimes and additional variables, such as marital status and age, further enriching its understanding of gender dynamics in taxation.

Looking ahead, DIAN’s experience offers a model for other countries seeking to integrate gender considerations into tax administration. Its methodologies, while tailored to Colombia’s context, demonstrate the potential of leveraging tax data to address structural inequalities and promote inclusive economic growth. The collaboration between DIAN and the World Bank underscores the value of strategic partnerships in tackling complex societal challenges. By advancing gender-sensitive fiscal policies, DIAN is not only contributing to Colombia’s development but also setting a global example of how tax systems can drive social equity.