GST over a digital services tax for AI

Speaking with Accounting Times, e61 Institute senior research manager Matt Nolan (pictured) has said that a greater reliance on GST would be a good tax option as AI continues its labour steamroll.

Nolan suggested that Australia switch from an origin tax (income tax) to a destination tax (GST) for AI, as the GST model is a robust base that operates as a form of insurance.

Digital services such as AI can be seen as consumption, he said, where GST can be applied.

“What’s going to happen in the future is uncertain, and a GST base’s robust to any change that happens and will give us a tax base that’s relatively stable as a result,” Nolan said.

Current AI taxes

Nolan called the concerns around the need to tax AI “overstated”.

Currently, Australia taxes AI where it is used as an input to produce output, and if AI services are being provided domestically, the capital income of these providers is taxed, Nolan said.

He told the brand that, compared with the US, Australia’s tax system does not incentivise investment in robots to replace human labour.

“When we look at the US, [who] have a bunch of subsidies and expensing provisions and different types of corporate tax treatment and discounts on things like capital gains … they end up with lower taxation of capital income. That incentivises people to go on [and] potentially build up robots rather than hiring workers.

“When we look at Australia, we have a comprehensive income tax system, and if anything, that overtaxes capital relative to labour because it doesn’t give that allowance for inflation.

“So for that reason, you know the tax treatment of the decision to invest in plant and machinery and capital is not more attractive than hiring a worker; if anything, it’s already penalised.

“We can see that when we work through the figures that if there was an increase in the capital income share, it would actually lead to more tax being collected, not less.”

A country against consumption tax

Australians do not like the idea of a consumption tax because it feels more punitive compared to income tax, Nolan noted.

He said he is concerned that when taxpayers see income tax declining and foreign-provided AI having an increasing presence in our lives, taxpayers may look towards a separate digital services tax for AI.

“A poorly introduced digital services tax could be very distortionary. With a GST, we know we're treating all different ways of spending consistently and capturing that destination base of income.

“If you truly believe in a digital services tax, the key thing to do to face that concern would actually be to increase the GST, not introduce a whole new tax instrument.

“Income and consumption taxes are incredibly agile and incredibly flexible for raising revenue. There are always ways to improve.”