- AI could erode government revenues by replacing domestic labour, shrinking income tax and social security bases that make up a large share of OECD receipts.
- One policy response discussed is shifting taxation away from labour toward capital gains and heavier consumption taxes, including broader VAT bases.
- VAT can capture more cross-border digital activity through destination rules, bringing foreign AI/digital suppliers into the local VAT net even without a local establishment.
- However, VAT only taxes consumption, not the profits or capital gains generated when AI replaces labour, leaving much of the economic gain untaxed domestically if it accrues overseas.
- Attempts to tax foreign digital businesses more directly via digital services taxes have faced political resistance and risk of US retaliation, limiting governments’ options.
Source: vatcalc.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
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