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AI and robotics may change tax job duties

There are concerns about job losses due to technology in the tax industry, but it’s too early to make assumptions.

By Karen Lynch

As robotics and artificial intelligence (AI) become more prevalent in the workplace, questions have emerged about the very future of work: are these advanced technologies job killers? Job creators? Job enhancers? Or all of the above?

The debate is just beginning, and answers could be a long time in coming. What is clear is that the time to prepare is dwindling quickly: the Gartner research firm predicted at the end of 2017 that AI will eliminate 1.8 million jobs by 2020 and create another 2.3 million jobs.

"Governments will need to balance their responsibility to sustain employment and the social fabric with the need to support new technologies that could bolster future economic growth."


Outcomes will most likely vary by geography, industry, type of work and other factors. The Gartner report, for example, predicts that AI will create jobs in the health care, public sector and education industries, while the manufacturing sector will be most affected by job losses.

The late Stephen Hawking expressed concerns in 2016 about AI and the impact on the economy as well as the development of powerful autonomous weapons.

AI “will bring great disruption to our economy,” Hawking said at the time. “In short, the rise of powerful AI will be either the best or the worst thing ever to happen to humanity. We do not yet know which.”

Some believe AI and robotics present more opportunities than problems ahead. Robots and AI are expected to take over remedial tasks, freeing workers up to focus on more interesting value-added activities.

In an interview with CNBC, an AI researcher, Max Versace, said he believed the technology would encourage people to seek out more challenging jobs. “Humans are resourceful, and history has shown we can change to various economic conditions,” Versace told CNBC.

A tax world example

Channing Flynn, EY Global Digital Tax Leader at Ernst & Young LLP in San Francisco, agrees that AI will also bring opportunities for workers in the future. “Sometimes you read headlines that the robots are going to come and take all of our jobs,” says Flynn. “I actually think the opposite — I think there are whole new fields of jobs opening up.”

He offers the example of the tax world. In the past five years the single biggest source of United States Securities and Exchange Commission restatements has been income taxes.

Tax provision accounting on a global scale is difficult, expensive and not yet being achieved across all businesses, according to Flynn. And it will become even more challenging as the expectations from company boards and tax administrations increase.

AI and the broader intelligent automation trend, which will allow businesses to automate more of their processes, could prove helpful in this regard. “The coming wave of intelligent automation should actually enable us to achieve what we really need to achieve in the tax world,” Flynn says.

While there are concerns about job losses due to technology in the tax industry, Flynn believes it’s still too early to make assumptions, especially in light of widespread legal and regulatory changes within today’s tax landscape.

Tax threat

Determining a course of action will not be easy for governments as businesses accelerate their use of AI and robotics — whether physical robots in the factory or robotic process automation software in the office.

On one hand are complex and critical tax questions. If job losses cut into countries’ income tax revenues, how would governments fill the gap in their treasuries?

What will be the public cost of continually reskilling populations for an ever-increasing-tech world, as well as providing adequate support for people put out of work by robotics and AI?

On the other hand, governments want to encourage technological innovation, and putting taxes or regulation at an early stage on new technologies could hinder their development.

Experimental solutions

Some academics and governments are already conceiving and experimenting with targeted tax and wage solutions. Even the most fundamental tax precepts could be rewritten, according to Charles Davis, EY Global Tax Lead Analyst in London.

For example, effective corporate income tax rates tend to be lower in many countries than the effective tax rate (i.e., income and social security taxes) that employees pay on their wages.

So an increase in corporate profits and reduction in employee costs because of the use of robotics would produce less tax revenue for the government as employees are taxed at a higher rate than businesses. 

“The balance between the two could become a really tough question, over time, because — if value creation moves from being delivered by humans to robots, you’re talking about quite a big potential hit to government revenue,“ Davis says.

Many suggestions, few answers

In an interview with Quartz in early 2017, Microsoft Co-founder Bill Gates caused a stir by suggesting the creation of a “robot tax” — basically, taxing a robot at a similar level to a human worker performing the same task. One way could be by taxing profits generated by the labor-saving efficiency of robotics and AI, Gates said in the interview.

During the past year, proposed tax solutions have only proliferated. For example, taxing capital investment in automation could be an alternative to taxing profits.

In another twist, a robot tax could be paired with minimum income payments for everyone, since a robot tax alone would have to be extremely high to address societal goals, according to research by Sergio Rebelo, a professor at the Kellogg School of Management at Northwestern University, and Pedro Teles, a professor at the Universidade Católica Portuguesa.

There is growing discussion about the merits of a universal basic income in the AI age, providing all individuals with a minimum amount paid regularly and unconditionally. Proponents argue that the approach could actually incentivize entrepreneurship, volunteerism and other socially desirable outcomes.

One World Economic Forum (WEF) panelist this year broadly suggested eliminating corporate tax breaks and subsidies to support a universal basic income for all, regardless of work status.

A pilot of the basic income concept is planned for Stockton, California, in 2018. Finland is expected to publish the results of its pilot at the end of 2018.

Other alternatives include wage insurance, which could provide incentives for workers with old-economy skills to take a pay cut in the short term as they get on-the-job training for 21st-century positions, according to a white paper co-written by Kellogg School Professor David A. Besanko.

Giving — and taking — incentives

In a report released in January 2018, the WEF called for a “reskilling revolution” saying that, “For companies, reskilling and upskilling strategies will be critical if they are to find the talent they need and to contribute to socially responsible approaches to the future of work.”

As for governments, “reskilling and retraining the existing workforce are essential levers to fuel future economic growth [and] enhance societal resilience in the face of technological change.”

The question is how to pay for that training. One proposed solution would be a financial transactions tax or a new tax on high-net-worth households to fund job training, according to Besanko. This would be in lieu of a robot tax, which critics warn could slow innovation.

Tax incentives are also cited as a possible solution. For example, tax credits could go to companies that hire and retrain displaced workers, suggested an op-ed written by a tax lawyer in the San Francisco Chronicle, which also pointed out that the new US tax law provides more incentive to invest in automation equipment than in jobs for people.

Looking ahead

As the debate over robotics, AI, the future of employment and the impact on tax continues, businesses need to monitor the situation closely. At a minimum, they need to understand the one- to three-year horizon — and plan for various tax and employment scenarios as part of their strategy for digital transformation.

Corporate training programs should be continually re-evaluated, given the acceleration of these advanced technologies and the growing intensity of the surrounding debate.

Businesses should also help policymakers understand the nature of robotics and AI, as well as their implications for the future economy and the future of work.

Governments will need to balance their responsibility to sustain employment and the social fabric with the need to support new technologies that could bolster future economic growth.

How we can help: Digital tax

LEARN MORE

EY’s Connected Tax spotlights the rise of the tax function as a strategic boardroom partner. We help you link the broader organization and its stakeholders, tax authorities, and the data and information that are transforming business models. Learn more at www.ey.com/connectedtax.

CONTACT

Channing Flynn

channing.flynn@ey.com

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