Will a ‘Robot Tax’ help workers displaced by the ongoing automation revolution or create a roadblock to the introduction of new technology? What can be the solutions that the Government can look towards? The Jury on the proposal is still not out. 

From Bill Gates To Swadeshi Jagran Manch

The demand for introducing a ‘Robot Tax’, was first propounded by Microsoft founder Bill Gates and then picked up by Bernie Sanders in his book ‘Its OK To Be Angry About Capitalism’.  The echoes are now resounding closer home.

Some weeks back, the right-wing Swadeshi Jagran Manch told Finance Minister Nirmala Sitaraman through its inputs on the budget that she should consider a “tax on the use of labour displacing technologies (robot tax), not to discourage the new technology but to cross-subsidise those who are losing jobs due to the use of labour displacing technologies.”

Several continents away, Pat Burke, a New York state assembly member from the Democratic Party last week introduced legislation seeking to tax corporates if their adoption of automation, artificial intelligence, or other technology resulted in workers being laid off or displaced. 

The Whys And Wherefores of Robot Tax

The demands to tax robotisation and to protect worker interests from revenue flows from such a tax, stem from studies which show that jobs and therefore income that would have been spent by workers in their role as consumers (which in turn drives any economy) would be lost as automation gains ground. 

A paper – Robots and Jobs - by Daron Acemoglu of MIT and Pascual Restrepo of Boston University concluded that one extra robot per thousand workers reduces the employment-to-population ratio by 0.2 percentage points and wages by 0.42 per cent.

The justification for such a tax is drawn from two pivotal roles that this measure will enable: the first we have discussed - provide economic support for those who are displaced by the march of robotisation or technological change and the second - to prompt business houses to weigh the advantage of human labour as against the efficiencies they would gain from automation.

The problem that arises from such a tax is that a state can’t tax robots. The tax will fall on corporations and may well act as a disincentive for them to modernise and adopt new technology in an era when the world is going through a fourth industrial revolution and in the case of countries like India – simultaneously trying to cope with both the third and fourth revolution – ushering in both automation and digitalisation. 

However, there is still a crying need to protect workers and retrain them for the new world industrial order. To do so, countries need to raise resources, especially emerging economies like India, where the workforce lacks formal social protection programmes and unemployment insurance.

Lessons from past waves of automation – the Industrial Revolution and the Information Technology Revolution – and the IMF’s own modelling on probable courses of action, do suggest more generous unemployment benefits and retraining of workers can cushion the impact of robotisation on workers. 

However in time, once the automation wave catches on, its efficiency benefits will lead to more production and greater income and also create more jobs. But that would be in the future. Till then social welfare measures will certainly be needed. 

How To Direct Resources Sans A Robot Tax?

As automation is ushered in, tax yields on wage incomes are bound to decline as many people will lose jobs at least temporarily. In recent years, India has relied more on personal income tax rather than corporate taxes to garner revenue. 

To protect the tax base as well as to garner resources for social protection and training programmes for affected workers, there would be an obvious need to find new sources of revenue.

If a ‘Robot Tax’ is to be shunned, then our policymakers would have to look anew at taxing the other factors of production. Strengthening corporate income taxes could certainly help. The rate currently stands at between 15 per cent and 22 per cent depending on when the industry was set up. While the basic rates need not be tinkered with, a case could be made out for taxing super-profits in many industries including petroleum refineries which have earned huge windfall profits. 

There is perhaps also a case for taxing India’s ‘Richie Richs’. The richest 9,223 individuals (out of more than 9.2 crore Indian adults) earned an average of more than Rs. 48 crore annually in 2022-23, while the average wealth of the top 1 per cent stood at Rs 5.4 crore, more than 40 times the wealth of an average Indian, according to a study by economists including Thomas Piketty. 

By 2024, given the fast-paced rise in India’s GDP, those figures for the “really rich” would have certainly risen further and a small surcharge on incomes beyond Rs 5 crore per annum may do wonders for India’s social sector budgeting.