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there'll be no need for tax amnesties when the robots take over

Kitty Miv, Editor
13 September, 2017

Kitty's Country Rankings are below, with a description of how they are compiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

The race is on. Russian leader Vladimir Putin said recently that the nation that makes the first major breakthrough in artificial intelligence technology will be the nation that effectively rules the world. And in the meantime we've already seen two countries trying to get a head start on their competitors: China, which has announced the provision of tax breaks for companies investing in AI research; and Thailand, which has unveiled a multi-agency scheme to boost the country's robotics sector.

Not that I'm suggesting in any way that the Chinese and the Thais are hellbent on achieving global hegemony. But Putin has a point. Scientists and philosophers are currently speculating what a future with AI would mean, and the more pessimistic among them warn that it could be the next trigger for a major global conflict.

While this isn't the forum for a profound discussion on the future of mankind, advances in technology do have major implications for the world of taxation. If, as is widely predicted, robots and AI do take over many of the tasks now being performed by human beings, how will that affect tax bases? The pay people receive for performing tasks is typically subject to one form of tax or several. But no more work means no more income, and, possibly, no more income tax.

It might be the case that we are headed towards the long-anticipated (by some) "leisure society," where jobs in the traditional sense will be a thing of the past, and governments provide a universal basic income. But it still begs the question: where the money will come from? Should we tax the robots? Is it possible to tax a robot? How would a robot react to being taxed? Why can't I get images of Terminator 2 out of my mind...?

On to matters of a more organic nature now, and here's a tester for you: how do you prevent damage to the environment from cows doing what cows do i.e. eat and produce copious amounts of noxious waste? According to the New Zealand Green Party, you tax them. Or rather, you tax the farmer that owns the herd, because cows typically don't respond to tax signals, and they will continue to produce voluminous, climate-changing flatulence and foul the watercourses no matter how much you tax them.

Whilst this may be a relatively minor development in the world of taxation, for New Zealand it is a big deal. Dairy farming and associated products account for about one-sixth of its exports. Yet, by all accounts, many farmers, saddled with debt, are struggling to make ends meet. Therefore, this is an issue that needs considering very carefully. Which is why perhaps, to the relief of the agricultural community, the mainstream political parties aren't going down the same route.

It also has global relevance, for tension between economic and environmental policy is perhaps the most pressing matter of the age, probably more so than AI. And a consensus has emerged over the last couple of years that says putting a price on pollution is the best way to stop it. This may turn out to prove effective. But the trouble with taxing something out of existence is that you no longer can collect revenue from it.

Indeed, as esoteric as taxation seems to most people, it continues to have a major bearing on economic activity. Perhaps more so than it has ever done given the globalized nature of the economy.

Tax is included in the basket of factors that companies weigh up when deciding where to invest, and can sometimes be the decisive factor in these decisions. One example is the ship management sector, with a recent survey by EY finding that a country's tax and regulatory environment is top of the list of concerns for around eight-out-of-ten respondents.

This survey was also significant because it canvassed the views of the ship management sector in Greece. It's one of the country's most important industries – official statistics reported in 2015 said that shipping and associated industries contributed 7.5 percent to Greece's gross domestic product. However, 69 percent of respondents saw Greece's regulatory environment as a disadvantage, with tax matters cited as a negative factor by 62 percent.

That the majority of ship management firms place favorable taxes and regulations top of their wish lists should give the Greek Government cause for concern, because Greek fiscal policy remains hugely constrained by the debt crisis, and the need to maintain an austerity footing.

On the other hand, one could ask why the industry hasn't yet jumped ship (ahem) and paddled off en masse to territories with more benign fiscal climates. Perhaps things aren't as bad as they're being made out to be. Nevertheless, this issue does underline how vulnerable the Greek economy remains in a volatile world where change is becoming the norm.

Some things in the world of tax seem to never change however. Particularly governments' apparent fixation with tax amnesties. Brazil is the latest in a long list of jurisdictions that have announced an amnesty-related development of one sort or another recently. In Brazil's case, it has decided to extend the deadline for its latest disclosure scheme by one month to September 29.

The success or otherwise of an amnesty is likely to depend hugely on its terms and conditions – too much stick and taxpayers might stay below the radar, too much carrot and the rule of law could be undermined. Still, I don't remember seeing too many headlines recently proclaiming that a disclosure scheme has been a roaring success. Indeed, the word "flop" is more readily used to describe the outcome of a tax amnesty. And notable flops have been reported in South Africa and India in the past few weeks.

More of a problem seems to be the regularity with which tax amnesties are deployed. Numerous studies show that the more a government utilizes tax amnesties, the less likely those with undeclared income or assets will come forward as they hold out in hope of more favorable terms in subsequent schemes. This tends to undermine the tax compliance culture rather than enforce it, and it can be no coincidence that jurisdictions with high rates of non-compliance are in many cases frequent users of tax amnesties – Italy being a prime example.

So, can it be concluded that the repeated use of tax amnesties is illogical? Perhaps. But then the human mind does remain susceptible to flawed thinking.

Perhaps when the robots finally take over our jobs, there'll be no need for tax amnesties; they'll be logical and compliant. Won't they...?

Kitty's Encomiums and Execrations

Methodology: each week (this is the 147th) one or more countries are given encomiums and one or more are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as - 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at minus 2, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to - 1, and another one in week six, dropping to - 2; finally in week 13 it got something right, so it went back up to - 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums

China intelligence

New Zealand uncowed

Kitty's Execrations

Greece vulnerable

Brazil illogical



About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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