Manila: The Asian Development Bank (ADB) on Thursday strongly pitched for national governments in the Asia and Pacific region to tax the rich more to finance the social security needs of low-skilled labourers who lose their jobs to robots.
Advocating a more progressive tax system which entails higher tax rates for high-earning people compared with low-income earners, ADB president Takehiko Nakao said that it was important for governments to support and provide a social security net to people left behind by technological developments. Nakao was briefing reporters on the first day of ADB’s annual board of governors meeting.
“We need policies to support people who are left behind by technological development. Some people may lose jobs and may not be able to find new ones easily due to lack of training. Providing social security net for them is important. We need to provide a minimum level of protection to them including healthcare and education to their kids," said Nakao.
At the ADB annual meeting, policymakers from the region are set to discuss the findings of its 2018 outlook which highlighted how technology affects jobs. The report, which was released in April, pointed out that new technologies warrant better skilled workforce, which may lead to job losses as some firms downsize or close. This makes the less skilled more likely to experience lower wage growth, exacerbating income inequality. Hence, governments need to come up with the right policy measures.
The ADB president also said that although market-oriented development models are pursued by nations, one cannot let the market decide everything. “We need a proper (income) redistribution system. We should have a more progressive tax system including individual tax, inheritance tax and property tax," said Nakao. “The new reality of growing inequality is an important issue to be addressed," he said.
Unlike indirect taxes on products and services that apply to the rich and the poor alike, income taxes are considered ‘progressive’ as they are based on the individual’s ability to pay, with the tax rate going up as income level progresses. Towards this end, India halved its personal income tax rate to 5% for income in the lowest slab of Rs2.5-5 lakh in the 2017-18 annual budget. In the 2018-19 budget, finance minister Arun Jaitley introduced a tax on long-term capital gains above Rs1 lakh from equities.
Abhishek Goenka, leader, corporate & international tax, PwC India, said India already follows a progressive system of taxation and that the tax rate for individuals (in the highest slab) is already among the highest in the world. “As far as the issue of inheritance tax is concerned, it may be desirable for the government to articulate its position," said Goenka.
India is now in the process of revamping its income-tax Act in line with global best practices. ADB is calling for a progressive tax system as the wage difference between routine manual jobs and that of highly paid cognitive jobs add up over time, increasing income inequality.
India also tried to keep indirect tax rates on mass-use items low when it rolled out the GST last July, under which luxury items are taxed at the highest rate.
Experts at ADB’s Economic Research and Regional Co-operation Department said there is, however, scope for optimism as technology will only displace certain tasks and not entire jobs and that rising demand will more than offset the job losses caused by automation.
“Consumer markets are saturated in the West, while there is dynamic growth in consumer markets in emerging markets, which is a huge opportunity," said ADB economist Elisabetta Gentile.