Economic Survey Suggests Taxing Profits If Company Replaces Human Labour With AI

The Economic Survey highlights the importance of updating AI regulations to reflect societal values and suggests taxing profits from AI-driven job replacements.

Hyderabad:The Economic Survey 2024-25, tabled in Parliament ahead of the Union Budget, highlights the labour impact of artificial intelligence. It emphasises the need to revisit and amend the regulatory frameworks to ensure the use of AI is marked with accountability and transparency, aligning with societal values.

The document cited an IMF paper to say that governments may be forced to tax incremental profit of corporations that use AI to replace labour. With an entire chapter dedicated to 'Labour in the AI era', the Economic Survey noted that while the impact of AI on labour will be felt across the world, the problem will be more severe in India because of its size and relatively low per capita income.

"The rapid advancement of artificial intelligence (AI) presents both unprecedented opportunities and significant challenges for labour markets worldwide. In this context, as policymakers, it is important to pay attention to the evolving technological landscape and the potential impact it can have on the labour market," the document said.

The Economic Survey indicated that if companies do not optimise the introduction of AI over a longer period and handle it with sensitivity, the demand for policy intervention and the reliance on fiscal resources to compensate would become unavoidable. The state, in turn, has to resort to taxation of profits generated from the replacement of labour with technology to mobilise those resources, as the IMF suggested in its paper, it noted.

The document said that India can align AI-driven innovation with societal goals by fostering collaboration between policymakers, the private sector, and academia. The survey warned about the responsible use of AI, or else it would leave everyone worse off and negatively impact the country's growth potential.

"India's demographic advantage and diverse economic landscape position it uniquely to benefit from AI. However, achieving these benefits requires significant investments in education and workforce skilling, supported by enabling, insuring, and stewarding institutions," it said.

The document talks about implementing structural changes to children's education in addition to safety nets that can shield existing workers from economic and social fallout. Utilising the window of time available during the nascent stages of AI to build robust institutions can ensure that the nation is well placed to minimise the costs as much as possible, it said.

"This can then help tilt the scale towards the benefits, bringing a balance to the 'cost-benefit' aspect in a labour-driven, services-dependent economy like India," it said.

"Ensuring inclusivity and sustainability in this transition is key to maximising benefits while minimising disruptions, it added. "With robust institutional frameworks and strategic planning, AI can serve not as a crisis but as a catalyst for equitable economic transformation, positioning India to thrive in an increasingly automated world."