Innovation

South Korea 'robot tax' is no tax at all; it's a warning of looming automation crisis

The South Korean government recently announced plans to reduce a tax incentive for businesses investing in automation. While it aims to help human workers, it sends mixed signals.

In order to curb the expected human impact of automation, the South Korean government plans to limit the tax break available to businesses, as reported by the Korea Times.

While not officially a "robot tax," the two percent drop in the available deduction can be seen as a policy with similar intentions: Limit the benefits of automating and the growth of automation will slow down.

No country in the world has yet implemented a tax on robots. The EU considered it in early 2017, but the proposal was roundly rejected. That rejection hasn't ended the debate on taxing automation—even Bill Gates has made his favor of the issue known.

Why South Korea's proposal isn't a robot tax

If enacted into law, South Korea's indirect robot tax would be the first of its kind. To call it a robot tax is a bit misleading though, since it doesn't impose any extra taxes on the purchase or operation of machines that replace human workers.

The current state of South Korea's automation incentives is a tax deduction of three to seven percent for businesses investing in automation. That incentive is due to expire this year, and the proposal would extend it until 2019 while reducing the rate by two percent.

SEE: Ebook—How to automate the enterprise (TechRepublic)

ZDNet reports that the policy change is "a kind of formal acknowledgment that unemployment [due to automation] is coming on a big enough scale to eat into South Korea's tax revenue." Yet despite that looming tax crisis, the incentive is being extended, albeit at a slightly reduced rate.

To summarize, South Korea is afraid of losing tax revenue to automation, so it's trying to slow it down by extending a tax cut that's due to expire. The policy is in no way a tax on robots—it's merely an extension and reduction of a tax incentive that will soon expire.

If anything, the South Korean government is simply kicking the tax crisis can down the road two more years while still giving businesses incentives to reduce their human workforce.

What the future of automation may look like

If South Korea's proposal does anything, it raises alarm bells about a coming crisis in tax revenue. In the US, for example, payroll tax and income tax make up 81% of federal tax revenue. Both will decline as automation increases, and the government will need to make up for the loss of revenue somehow.

Bill Gates proposes taxing automation in a similar way to income: If a robot displaces a worker that made $50,000, the company will have to pay a tax that would make up for the loss of payroll and income tax. It's a contentious issue for sure.

SEE: Machine Learning and Data Science eBook and Course Bundle (TechRepublic Academy)

Arguments have been made that taxing capital (like robots) will lead to businesses offsetting profit loss by lowering wages and raising prices. Others say a robot tax is an essential part of retraining workers who lose jobs to automation.

Without a working example, or at least a trial, of this kind of shift in taxation it's hard to predict how it will turn out. There is a certain inevitability to the issue though, and South Korea may be the canary in the coal mine for the tax crisis that automation will cause.

Just don't call South Korea's incentive a robot tax.


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About Brandon Vigliarolo

Brandon writes about apps and software for TechRepublic. He's an award-winning feature writer who previously worked as an IT professional and served as an MP in the US Army.

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