A tax on robots is a tax on the business that invested in them, writes Brian Keegan
Bill Gates is world famous for his contribution to the software industry and for the charitable work of the foundation he runs with his wife Melinda.
His name is not usually associated with tax policy but in the past few days his comments on taxing robots were widely reported.
Mr Gates observed that because robots are doing more and more of the work traditionally associated with human beings, there should perhaps be some form of tax charge associated with their use.
It’s a long-held principle of government that it is always better to try to tax people that don’t vote more than those who do. This is just one reason why expatriate taxation is such a popular pastime for revenue authorities across the world. But could a tax on robots work?
Robots mean different things to different people and in different parts of the world. In the west, our view is conditioned by years of watching advertisements for cars coming off automated production lines, or from Star Wars movies with shiny gold humanoids behaving as, but not quite like, human beings.
Mr Gates seemed to be tending towards the production line interpretation, as he spoke of robots cleaning rooms and making burgers. In South Africa, you’ll frequently hear people giving out about the robots, which is what traffic lights are called in that country.
If a government is seriously looking to raise revenue from robots, should it also look to the kind of human work displaced by the information technology we use, much of which is underpinned by Mr Gates’ own inventions at Microsoft? Computers are also robots, in the sense of being machines which replace humans. Routine office jobs involving bookkeeping, analysis and other forms of number crunching, dictaphone typing, document assembly, duplication and filing — all these have been phased out by information technologies. The higher the tech, the fewer the employees.
Such displacement has been presenting challenges for governments across the world seeking to levy money from businesses in a sustainable way. Current EU proposals for taxing companies talk about allocating profits on the basis of where the capital of the business is invested — where the factory or office is built. The location of the company’s market is deemed important. Then the location of the employees is factored in. All three factors are considered important in more or less equal measure.
The capital/market/employee approach makes sense when business generates most of its money from traditional mining, manufacturing and distribution. It doesn’t sit easily with modern high-tech service industries where in productivity terms, much is achieved by a very highly trained few through the intensive use of technology.
There has also been pushback against proposals which seek to tax technology usage directly, not least because such measures are thought to be retrograde. Proposals in the UK and elsewhere for a “bit tax”, which would levy a charge based on internet downloads, never really got out of the blocks. In practice what most countries tax are the productivity gains achieved by the use of technology.
Generally businesses are taxed on the difference between what they earn and what they spend to generate those earnings. If a business spends less on generating earnings through using technology rather than employees, the tax charge on the business will be higher. Not only that, Irish tax law usually spreads technology investments over eight years, irrespective of the type of robot, production line or computer they invest in. Purely from a business tax point of view there is a greater tax saving in hiring an employee than in buying a machine.
I think the real difficulty with Mr Gates’ idea is that when it all boils down only people pay tax. A tax on robots is a tax on the business that invested in them, and ultimately on the owners of the business. Business owners tend not to be robots.
Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland
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