Finance Minister Ms Nirmala Sitharaman recently convened a critical meeting with economists to strategize for the upcoming budget. As discussions spanned across crucial areas like driving private investment, creating new jobs, and managing fiscal resources, one topic sparked discussions: the growing use of artificial intelligence and its potential impact on employment.
Among the proposals was a contentious “robot tax” aimed at reskilling workers displaced by AI. With influential voices like Bill Gates and the IMF weighing in, the question remains — is it the right time for India to take such a bold step?
Source: Adobe
Finance Minister Smt Nirmala Sitharaman has engaged with several stakeholders ahead of the much awaited Union Budget 2024-25. Areas of discussion included crucial topics like driving private investment, creating new jobs, judiciously maintaining fiscal resources, and proper management of debt levels and food price levels.
However, besides the conventional areas of discussion, one topic that gained attention is the growing use of artificial intelligence and its possible impacts on employment. The proposal of a “Robot tax” was given by an economist, which will finance the reskilling and will enhance the employability of workers, that are impacted by AI-driven displacement.
A robot tax is a proposed financial measure where companies that use automation and robots in place of human workers would be taxed. The idea behind a robot tax is to address the economic and social impacts of automation, such as job displacement and income inequality. It is envisaged that such a tax can be used to support displaced workers with retraining, education, social welfare and ensure more equitable distribution of wealth.
The concept of ‘robot tax’ entails creating a framework that evaluates the various contributions of AI and robotics and understanding their impacts on employment displacement potential. For implementing robot tax, there needs to be a fair understanding of the legal relationship between human beings and robots/AI. Providing them a legal entity will become a basis for taxation, with specific rights and obligations that also give them the power to engage in a contract. Further, they will be held accountable for their specific actions, and be taxed as a separate legal entity.
However, creating such a system is quite a complicated task and will create many legal issues. Experts are also quite divided on this issue.
In 2017, South Korea became the first country to introduce a robot tax, as it’s manufacturing sector is quite dependent on robots. Another reason for the implementation of the tax is the alarming rate of unemployment because of automation. Interestingly, it is not a tax on robot manufacturing per se. Actually, the South Korean government has reduced the tax breaks that companies investing in automation previously enjoyed. Its existing automation incentives of a 3-7% tax deduction for businesses investing in automation have been reduced by 2%.
New York’s Mayor and 2020 presidential candidate, Bill de Blasio, proposed a robot tax to safeguard 36 million jobs, that can be replaced by technology by 2030. He suggested that the revenue from the robot tax could be used to create new jobs in sustainable energy sectors, skill development, and healthcare. This would also make it harder for companies to exploit tax loopholes and invest in automation, which leads to job losses. His proposal received criticism, and one of his critics said that the robot tax would make it difficult for companies to adapt to new technologies, which would increase their costs, therefore pushing them out of the country.
Former Microsoft CEO Bill Gates has suggested that a robot tax could help fund retraining programs and other social services for workers displaced by automation. He argues that slowing down the pace of automation could give society more time to adapt to these changes. In fact, he argues, that since ‘robots’ do not pay income taxes or contribute to social welfare systems, they should be taxed similarly to human workers to ensure that society as a whole benefits from increased productivity. This brings a larger question pertaining to co-existence of humans and robots in the workplace and the kind of ecosystem that could emerge in the coming years.
Lawrence Summers, former U.S. Treasury Secretary and Harvard economist, is however opposed to the idea, as he feels that it could stifle innovation and economic growth. In his view, it will be better to focus on policies that support education and workforce development.
In 2017, the European Parliament raised the issue of legislation for regulating the growth of robots, via an ethical system of their development and usage in industry. However, the proposal was opposed in the parliament and this was praised by the robotics industry. MEP Mady Delvaux from Luxembourg, the report’s author, expressed disappointment that lawmakers “ignored potential negative impacts on the job market.”
The recommendation for a “robot tax” in the discussion with the Finance Minister aligns with a recent IMF paper that recognized AI’s potential to boost overall employment and wages but also warned of significant job losses for extended periods, making the transition difficult for many workers. While the IMF advised against a “robot tax,” it stressed on the need to reassess labor policies and social protections. It suggested focusing more on skill development and sector-based training, expanding unemployment insurance coverage, and considering wage insurance. It also recommended that countries review their corporate tax systems to understand how they incentivize automation investments.
Prof. Amita Vaidya, Director, NMIMS Sarla Anil Modi School of Economics comments, “Robot tax will deal with income disparities but it’ll discourage investment in technology, stifle innovation, and will reduce global competitiveness.” She suggested creating a system that will focus on skill development along with taking care of technological advancements and innovations.
In a recent interview, IMF’s deputy managing director Gita Gopinath highlighted the major issues developing countries will face concerning AI, as they don’t have proper social security available. She stated, “If you look at the fraction of young people who are neither in school, nor working or in any kind of training, that number is much higher than in advanced economies. Which means that their ability to either benefit from the transition or adapt to the transition is going to be more difficult. These are areas where developing countries will have to invest more in trying to provide a stronger digital infrastructure, more education and training so that they can also benefit from this technology,” she said.
On the other hand, Mridul Saggar, Professor and Head of Uruppika – the Centre of Excellence in Macroeconomics, Banking & Finance at IIM Kozhikode, believes that implementing a specific tax on firms in India at this stage could harm total factor productivity growth, given the country’s lag in AI adoption in business. However, he acknowledges that the concept of a robot tax is a ‘thoughtful idea’ due to the transformative capabilities of AI and robotics, which come with high social costs. Saggar emphasized the need for funding safety nets and workforce transitions to mitigate these impacts.
There are only predictions regarding AI’s impacts on future job opportunities. As per the paper “Artificial Intelligence in Service” by Ming-Hui Huang and Roland T. Rust, jobs that require a lower level of intelligence and have fewer human interactions are more likely to get replaced by AI, as compared to jobs that require higher intelligence levels and more human interactions. One commonly cited study is from 2013, Carl Benedikt Frey and Michael Osborne of Oxford University said that 47% of the US could be replaced by machines and robots ‘over the next decade or two’.
As per some economists, there certainly are some concerns regarding AI and robots, that we need to be cautious about. Daron Acemoglu, an economist at MIT, says, “AI is very much in its infancy,” He added, “We don’t really know what it can do. It’s too soon to know its impact on jobs.” He says that the extent of job replacement by technologies depends upon the tasks that are replaced by them. Some jobs have been placed by previous technologies like cashiers and bank tellers, and they have improved their efficiency in one way or another, but will this pattern continue? “With robots, and down the line with artificial intelligence, the replacement part might be far stronger,” he cautions.
Source: MIT Technology Review
As shown in the graph, low-paid employees are more likely to be replaced by automation via robots and AI compared to those with higher salaries. This trend further widens the gap between the rich and poor, making the poor even poorer. According to Prof. M. Venkateshwarlu, Professor of Accounting and Finance at IIM Mumbai, the trend of increasing automation is also evident in Indian companies. While it drives economic growth and productivity, it poses a significant risk to income equity. To address this, he advocates for “reskilling, policy formulation, and ensuring equitable access to technological advancements.” Prof. Venkateshwarlu also supports the argument for a robot tax, stating that “robots can substitute for routine workers,” and making them more expensive could discourage their use by companies.
Overall, the proposal of a robot tax in the discussion with FM Nirmala Sitharaman, has ignited considerable debate, with its pros and cons. While taxation on companies in this field can stifle innovation and hamper growth, one has to carefully consider the larger social costs of AI on employment, enhancement of the digital divide and possibility of rendering a large mass of people unemployable. As rightly pointed out, the risk of this is even more severe in developing countries.
Certainly, the situation calls for a carefully laid out roadmap to ensure that these people have the necessary skill sets to be active participants in the Industry 4.0 world. At the same time, a robot tax also needs to be structured in a manner that it provides a more level playing field to startups and MSMEs. If implemented, the government could consider a certain threshold under which this kind of tax is not applicable for such firms.
You must be logged in to post a comment.
Stay ahead in the dynamic world of trade and commerce with India Business & Trade's weekly newsletter.