Tax, Robots and the Global Citizen

Who likes tax? Nobody. I saw the IMF’s Christine Lagarde at the World Government Summit last week in Dubai. She was extolling the virtues of taxation. Not the easiest sell in Dubai, where for many locals the government is more like an ATM than a tax machine.

Ms Lagarde paid tribute to the United Arab Emirates for being “willing to put in place VAT,” and suggested that a simple, digital system was now an inevitability.

Bill Gates, the founder of Microsoft, went ever further this weekend and said that robots that take human jobs should be taxed too. He told Quartz magazine that a robot tax could finance jobs for people taking care of the elderly or working with kids in schools. He said that governments must oversee such programmes rather than relying on businesses in order to redirect the jobs to help those with lower incomes.

The idea is not just theoretical: politicians in Brussels had a discussion on whether to tax robot owners to pay for training for workers who lose their jobs, though on Feb. 16 the legislators ultimately rejected it.

You ought to be willing to raise the tax level and even slow down the speed of automation,” said Mr Gates. “You cross the threshold of job replacement of certain activities all sort of at once.”

Tax goes to the very heart of the relationship between citizen and state. The American War of Independence was sparked because American settlers did not want to pay tax without being represented in parliament. Opposition to Mrs Thatcher’s rule in Britain was accelerated because of her desire to change a property tax into a poll tax.

VAT is something else, a simple sales tax. (VAT stands for value added tax.) If you don’t want to pay the tax, don’t buy the goods, though doubtless it will be extended to services too, such as utility and phone bills. It’s hard not to see how many people will reconsider their choice to live in the UAE if VAT comes in as planned in 2018, but let’s wait and see.

Of immediate interest is the role a global citizen plays in paying taxes. Should it be where he lives, even if he or she spends a lot of time on the road? Or where they work? On the properties they own or the people they employ?

The modern mobile inter-connected class has evolved quicker than society. And the introduction of a tax, even a VAT, will be challenging. Tax harmonisation in the European Union has been singularly inharmonious, with Brexit coming before fresh talks are scheduled. The United States has solved this thorny tax issue by saying that all US citizens should pay tax, wherever they reside.

This does at least resolve any ambiguity, although it doesn’t stop people complaining or occasionally renouncing their US citizenships, as famously Eduardo Saverin, one of the founders of Facebook, did before its IPO, choosing to live in tax-friendly Singapore instead. This deprived Uncle Sam of millions of dollars.

The United States is the only country in the world that does this, although Eritrea claims to do something similar with its diaspora tax. But I have been to cities where there are no taxes, or at least no culture of paying them, and they’re generally not pleasant places – not Singapore I hasten to add, nor Dubai or Abu Dhabi!

The best taxes are those that are simple, fair and efficacious. On balance I am inclined to agree with Ms Lagarde. It may be the end of Dubai Duty Free, but the beginning of something bigger.

As for the robots, it’s hard not to feel a bit sorry for them. No sooner do they get in the workplace than people want to tax them. At least they don’t die, they just rust.

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