Understanding how Artificial Intelligence will redefine Tax laws Globally



Can Artificial Intelligence that aids in Tax collection be Taxed?

With the advent of artificial intelligence, every sector is impacted. The human workforce is significantly unburdened in performing redundant tasks. Additionally, with artificial intelligence, the tasks are performed with more accuracy and precision, thus eliminating the risk of errors.

Artificial Intelligence aiding in Financial Services

The financial sector is listed amongst the top profiteer of digital transformation. It holds the utmost significance in the global market. Any error made during operations in the finance sector consequently impacts other industries. Tax collection is regarded as an extremely imperative domain in the financial service sector. The global tax management market is forecasted to grow from US$15.5 billion in 2019 to US$27.0 billion by 2024, at a CAGR of 11.7% during the forecast period. The tax paid by employees to the government contributes to maintaining public sector infrastructure. However, over the years, the discrepancies in tax payment and management have surged.

Despite the robust mechanism to limit tax fraud, financial institutes face challenges such as cyberattacks, tax evasion and tax fraud. The International Monetary Fund has estimated that over US$600 billion is lost every year due to tax avoidance, with the US, China and Japan named to be the greatest culprits. Incidents such as Panama Papers and Ex-cum trades have sent shock waves to the global finance sector. Henceforth governments and federal agencies are becoming more vigilant to address the challenges of tax discrepancies.

Artificial intelligence and its subsidiaries are viewed to remedy the pressing concern of tax mismanagement. As tax collection, management, and monitoring require huge documentation and paperwork, the machine learning algorithm can detect the disparity in capital gains, corporate taxes, individual taxes and tax exemption. In the manual method, errors by employees have often ensued tax mismanagement. Due to the large data available, it becomes difficult to identify corporate and enterprises that are continuously breaking tax laws. By deploying AI, an individual or corporation’s historical data can be analyzed and evaluated, thus leading to earlier fraud detection.


Robotics and AI Taxes

The discussion of whether AI should pay taxes is revolving around in the industry for a while. Many experts and leaders have presented varied opinions about this particular topic. The existing tax and patent laws exempt automated workers from paying taxes. But global leaders like Bill Gates have argued in favor of robotic workers paying taxes. In a 2017 interview, he said, “Certainly there will be taxes that relate to automation. Right now, 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, and all those things. If a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level.”

Moreover, as automation is taking over human labor, a significant impact will be observed in tax revenues. Experts view that the government will require to reduce or eliminate the taxes from individuals who are devoid of jobs due to this new transformation in such a case. Another argument by critics is that instead of taxing the AI, the AI owner must be taxed. If this will be the case, many tech and corporate organizations will be rendered to pay additional taxes and corporate taxes. As profits generated by the automation process will be huge, a different argument of taxing corporate profits has emerged in the industry.

Despite many arguments floating in the tax sector space, the ultimate decision will have to be taken by the government and federal agencies, who are extremely uncertain about this nascent technology and viewing this under the lens of suspicion. International organizations like the European Union have rejected the robot taxes but have called for stricter measures to monitor artificial intelligence and robotics. The European Union has introduced digital taxes to mitigate the incidents of big techs evading taxes. Additionally, despite many differences with big tech organizations, the USA government has so far sided to give leeway for robot taxes.

Nonetheless, with the increased adoption of AI in the industry, a significant impact will be observed in tax laws over the next few years.