Whether or not robots should pay tax, it’s time to rethink the tax system

March 07, 2017

Robots should pay tax like humans do, according to Microsoft founder, Bill Gates. "The human worker who does, say, $50,000 worth of work in a factory, that income is taxed and you get income tax, social security tax, all those things.  If a robot comes in to do the same thing, you'd think that we'd tax the robot at similar level," he said in a recent interview.  It conjures up visions of R2 D2 style robots doing self-assessment, and has triggered quite a bit of debate.

Ultimately, at what point does a machine become a robot?  Automation is hardly new.  Since the agricultural revolution, many jobs have been replaced or become less labour intensive.  But other occupations have sprung up in their place, and the rise of the digital economy, and its offshoots like the gig economy, are in turn spawning new businesses, jobs and opportunities.

But arguably we are entering a new wave of change, not seen since the industrial revolution, with less need for human involvement and control.  Add to this the way the gig economy is changing and fragmenting work, we need to rethink how employment is taxed.   It's probably fair to assume less tax will be raised (from employment at least), and where it's coming from will change.

So it’s time to look at our reliance on labour related taxes (income tax and national insurance generate almost half of UK tax revenue), and how they're collected.  The PAYE system was built around the idea of people working for traditional firms, in a traditional way. Self employment has increased, with more people paying smaller sums - which could fall beneath existing tax thresholds.

A world of increased robotics also raises questions around other taxes, like corporation tax on profits.  Working out where multinationals' profits are made is based heavily around human involvement - where staff are based and what they do.

And it’s not just about what is taxed, but how tax is collected.  If robotics can make tax collection more efficient, seamless and accurate, it will be a boon for the public purse.

Ultimately, all this talk of taxing robots is a good trigger for a fundamental rethink of what should be taxed, why and how

Stella Amiss

Stella Amiss | Tax Partner
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