This article first appeared in The Edge Malaysia Weekly on October 23, 2017 - October 29, 2017

BILLIONAIRE Bill Gates is among those who think robots (essentially the owner of the machine) should pay income taxes to help people whose jobs were displaced. The money would certainly come in handy in funding the re-skilling of people who lost their jobs.

For the government, the added tax revenue would make up for lost income taxes from those replaced by machines and go towards widening the social safety net to help cushion the impact from rising unemployment or a widening digital divide. The idea for a robot tax was reportedly raised in a draft report to the European parliament in May last year and is also being looked at in the UK.

In August this year, South Korea introduced what some see as the world’s first tax on robots — when the country cut tax incentives for investments in automated machines that were previously introduced to boost productivity, The Telegraph reported.

Should Malaysia consider robot taxes?

The key argument against taxing robots is that taxation would deter capital investment that raises productivity, which, in turn, boosts economic output.

“Technological advancements in robotics and artificial intelligence are breakthroughs that will reshape industries and bring forth new opportunities ...  Any form of taxation would deter employers from adopting robotics and would discourage them from investing in Malaysia. The country would be left behind in the age of the Fourth Industrial Revolution,” says Malaysian Employers Federation (MEF) executive director Datuk Shamsuddin Bardan.

He reckons that the government should reward capital investment in robotics and artificial intelligence with tax incentives and make available skilled workers to boost overall productivity.

Westports Malaysia CEO Ruben Gnanalingam reckons that a robot tax “would only make sense” if every country in the world imposes one. “Otherwise, countries that do would almost immediately lose international competitiveness versus the ones who do not tax robots. Since it would be improbable for all countries to do so, such a tax would be silly. What we should definitely never even consider is a tax on robots that displace jobs currently held by foreign labour. We need to reduce our dependency on foreign labour, and technology and innovation are some of the ways to solve it,” he says.

One such innovation is happening in Sweden where Volvo Group is working with universities to develop “smart bins” that can send a beacon for collection by a robot or driverless truck when they are full.

Yet the proponents of robot taxes note that the added cost is justified because there is a negative impact on the economy from people losing jobs — which is different from an investment in a factory, which creates employment.

Dr Yeah Kim Leng, economics professor at Sunway University’s Business School, agrees that taxing robots could be another source of direct tax revenue for the government, just like corporate or individual income tax, but feels that now may not be the appropriate time as robot usage is still in its infancy here.

“For now, being part of the production process, the contribution to tax revenue from the deployment of robots is already embedded in the firm’s taxable income [higher profits from higher output mean greater tax revenue],” Yeah says, explaining how investments in automation are still being promoted through various tax incentives such as accelerated depreciation, double tax deduction and capital allowance.

The more pertinent need, for now, is to ensure there are enough skilled workers and entrepreneurs ready to harness the benefits of these technological advancements to the benefit of the Malaysian economy.

It is also important that the workforce ensures that it continues to have relevant and marketable skills, something that MEF’s Shamsuddin would like the government to help ensure. He also urges the government to initiate a tripartite discussion between employers, workers/unions and policymakers on how to best prepare for the upcoming changes and challenges that come with the advancements in automation, robotics and artificial intelligence.

Nurhisham Hussein, head of economics and capital markets at the Employees Provident Fund, reckons that the onus of upskilling “will increasingly need to be borne by workers, not companies”.

“The key thing here is that the nature of work is changing radically, to the point that a corporate career will become increasingly rare. More and more are opting for short-term contract work, shopping their skills to many different companies and also in different countries rather than being exclusive to one company,” he explains, noting that this development “primarily benefits those with marketable skills”.

“What I’m describing isn’t unusual. In one sense, we’re shifting back to the type of employment relations that existed before the industrial revolution 300 to 400 years ago, when most skilled workers were in essence private contractors working for multiple employers. On the plus side, education itself is also changing. It has never been easier to access knowledge and teachings from top universities via online platforms and through YouTube,” he says, implying how paper qualifications may not be as important as the number of tasks one is skilled to do.

If open courseware and low-cost online learning systems can substitute conventional degrees and certificates, the existing education industry is poised to be disrupted, Yeah says. “This will happen if employers find that the digital age graduates are equally, if not more, competent than the conventionally trained ones. This ‘market signalling’, however, will take time to develop, thereby according the traditional universities time to adapt and adjust their pricing according to changing demand in order to survive in the digital age.”

He reckons that the government can help make it easier for employees to upskill and employers to allow time to do so. “Fostering continuous learning, upskilling, improvement and innovation in the company’s management and operational activities is essential to create dynamic and competitive firms that are at the frontier of their respective industries.

“Sabbatical and other study programmes that unleash individuals and allow them to achieve their full potential are much needed in mature organisations. Government can play a role by providing incentives similar to those for stimulating capital investment and R&D. These include double tax deduction, training tax allowances and financial incentives such as matching grants.”  

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.