It's worth asking why only now are we hearing these calls, is taxing robots the right approach and is there an underlying problem which suggests a different response?
So why now? For much of the 20th and the 21st century, mechanisation has been seen as a good thing. While production lines and the rise of digital technologies have failed to deliver the age of leisure that many forecast in the 1960s, they’re not exactly hot news. Worried at public reactions to the idea of having to deal with machines, many developers within manufacturing companies have worked hard to give their robots a humanoid appearance. So, if it looks a bit human, and tries to communicate like a human, then shouldn't it pay tax like a human?
Luddites used sledgehammers to destroy textile machines that threatened the jobs and livelihoods of skilled workers. Today, taxation’s iron hammer is wielded by those concerned that commercial profits and individual incomes do not reflect social justice. Social commentators, academics and finance ministries are urgently assessing the impact of robotics and AI on employment in general and on tax revenues in particular.
It's easy to identify the perceived problem. Some might say, "robots will take our jobs". Although the rate of job losses is not clear, it's likely to be slower than people anticipate. Nevertheless, job losses will be followed by declines in income tax, social security contributions and other payroll taxes. Exchequers will see healthy tax flows replaced by increased obligations to pay social benefits. So far, so simple: why not tax a robot as if it was a person?
Neither robots (no matter how humanoid they might look) nor the AI which drives sophisticated machinery, highly evolved service-delivery mechanisms or financial transactions are anything other than tools by which businesses operate. They exist to boost business productivity and profitability. Taxing them as if they’re real people simply doesn't make sense.
This brings us to the heart of the problem. In most G20 nations, the rate of tax which businesses pay on their profits (corporation tax in the UK) is less than the rate of income tax, social security contributions and payroll taxes paid by and in respect of the human workforce. So, increases in corporate profits promised by the rise of robotics will not result in a compensating increase in corporation tax receipts.
Realistically, only limited choices are available:
Increase the rate of corporation tax to compensate for the decline in labour taxes. With UK employment currently running at relatively high levels, the government is likely to have sufficient time to collect data and produce economic models on which reliable decisions can be based.
Reduce the tax incentives available for research and development. While that might contribute to the solution, it could be disastrous for advanced economies.
Or, broaden the tax base in other ways, for example through the implementation of a land value tax, through higher business rates for companies using robotics or AI, or through similar measures specific to business type or location.
These require thought, consultation and careful planning. Budgets characterised by the latest great idea from the chancellor of the day have no part to play in this.
Other issues must of course be taken into account. For example, should these changes to the tax system go hand-in-hand with the replacement of the current range of social benefits and tax credits with a universal basic income? While some fear that robotics will further polarise income inequality, companies must recognise that they are unlikely to succeed unless the population at large has sufficient disposable income to spend on their products.
George Bull is a senior tax partner at RSM