IMF Report Insights on Taxation and AI's Impact

TapTechNews June 19th. The International Monetary Fund (IMF) said in a recent report that it does not recommend directly levying a special tax on generative AI, but countries need to comprehensively adjust their tax systems for the development of AI to strike a balance between AI development and labor protection.

The IMF believes that directly levying a special tax on generative AI to ease the impact of this most disruptive 'automation tool' on the labor market is not feasible in practice and will also hinder the development of social productivity.

Each economy needs to expand the tax policy adjustment for generative AI to the broader field of 'automated investment'.

Some developed economies give overly high tax incentives to automated investments aimed at replacing labor, and the support policies for this type of investment need to be reconsidered to ease the impact of AI magnifying the imbalance in the labor market;

while for some developing economies, the opposite is true. Currently, using automated tools instead of manpower in these economies will lead to a heavier tax burden, which will hinder the deployment of AI and then affect social development.

The government can consider granting tax credits for behaviors that reduce labor loss due to automation, even if these behaviors are not targeted at specific occupations.

Countries need to increase the capital income tax rate instead of reducing it as developed countries have done in recent decades:

The automation wave brought by AI will inevitably erode the tax base of labor income tax, reducing fiscal revenue. If it is not compensated by a higher capital income tax rate, it will affect the scale of long-term social investment by the government such as higher education and welfare;

Moreover, the lower capital income tax rate will indirectly lead to a high unemployment rate and aggravate the friction in the labor market;

In addition, as the economic rent obtained by the dominant enterprises in the winner-takes-all market continues to rise, resulting in increasingly serious inequality, the too-low capital income tax rate cannot solve this problem.

The IMF believes that levying a carbon emission tax on it is a good way to reflect the impact of AI on the ecological environment in the technical price considering that AI servers consume a large amount of energy.

TapTechNews notes that the IMF also said generative AI will also bring more possibilities for the development of the tax system itself:

AI technology can change the information system structure of the tax administration and subvert the classic tax theory, urging the government to rethink the tax model that was difficult to implement in the pre-AI era, such as personalized progressive value-added tax and life-long income tax and so on.