Should Bots Pay Taxes?

Canadians went into the 2023 Canada Day Long weekend with the headlines decrying price gouging by big Canadian grocers. Canada Bread had just agreed to pay a fine of $50 million for their part in a decades-long bread price-fixing scheme. Speculation that?the big grocery chains profiteered from the pandemic became fact when the Canadian Competition Bureau’s Retail Grocery Market Study was released?a?few days later. NDP leader Jagmeet Singh to reiterated his call for an excess profits tax on corporations. As expected, grocery CEOs trotted out?increasingly hollow assertions of necessity due to cost increases. However, the question of an excess profits tax is not an?idle one. A permanent corporate tax hike and one-time windfall levy ?hit Canadian financial institutions last year. As more and more Canadians struggle to make ends meet these are likely only the first of many revenue-generating measures applied by the Federal and Provincial governments. ?

That brings us to the question of taxing Bots. ?

Physical robots and virtual AI bots have already had a profound impact on the Canadian labour market. Three years ago?StatsCan reported that over 10% of Canadians were at high risk due to AI, and almost 30% were at moderate risk. Today, the massive capability leap in Generative AI solutions such as ChatGPT and Midjourney has?impacted traditionally safe knowledge work and creative jobs. In government, particularly at the municipal level, these solutions can help offset some of the increased demand for support and services from impacted members of the community. Canadian corporations can also use them to increase their effectiveness and competitiveness in the?global market. However, when bots displace jobs they have a double impact on the community. ?

Tax revenues decrease, and the demand for the support and services funded by those taxes increases. ?

It’s a vicious cycle that will be felt first and foremost by municipal governments. Property taxes and user fees are revenue tools ill-suited to this challenge. Provincial and federal support for cities bearing the burden is essential. New revenue vehicles such as the pending federal Digital Services Tax Act are a start, but they are online transaction based as opposed to displacement-based. This does not directly address the needs of those whose incomes and ability to thrive are impacted.?

But should we really tax the bots??

The Brookings Institute, a public policy think tank, recommended that we do not in their 2021 report Tax Not the Robots. While US-based, their synthesis of research on the Canadian, French, and Spanish markets found that companies that embrace bots actually increase employment and productivity. Their hypothesis is that bots are not displacing labour, but complementing it. Taxes would be a?disincentive for companies to do the right thing. However, more recently, MIT’s Economics Department did a statistical analysis on the impact of automation on wages. Costinot and Werning found that there is a real impact on wages due to displacement. They also identified that a modest tax on automation and trade is required to offset the impact on wage equity. Their proposed taxes are modest: up to 3.7% on capital purchases of automation?and?to .11% on trade. Excess profit taxes and balanced tax levies on capital and operational expenditures as a?disincentive to over-automation have also been proposed by others.?

Why not have bots pay taxes??

All of these revenue vehicles are potential solutions to the problem. They also require?new taxation mechanisms, reporting, and supporting systems. This led Xavier Oberson, an international tax law professor at the University of Geneva to propose a more modest solution to the OECD. Treat bots as employees and tax their income. But bots aren’t people you say? It’s not as crazy as it might sound at first. This solution leverages existing taxation mechanisms. Corporate physical and IT asset management solutions have the data required to track bots just as HRMS solutions track people’s work. These systems must be?integrated with core finance?systems to enable Digital Resource Planning and represent a low-impact way to both identify taxable bot work and report on it.?

Canadian legislators must tackle this challenge now.?

There is?no shortage of solutions to address the wage equity, tax revenue, and government service demand gap. What Canadian legislators do not have is the luxury to wait. Our population has grown by over 110,000 people since we exploded past 40 million people just two weeks ago. At this rate, we could easily be over?42.5 Million by Canada Day 2024. Meanwhile, 60% more Canadians use food banks per month as inflation outpaces wages. An equitable solution that supports corporate innovation, productivity, and competitiveness that also ensures wage equity and sufficient revenue to deliver the?services Canadians need to thrive is essential.?

What do you think??