China Merchants Macro: How Will AI Impact Taxation?

**CMSC Macro: How Will AI Impact Taxation?** The CMSC macro analyst team released "How Will AI Impact Taxation? AI and Macro Series Part II," noting that with the rapid adoption and deep penetration of AI technology, modern tax systems are facing unprecedented challenges. Looking across past industrial revolutions, the first three technological transformations successively drove the establishment and refinement of personal income tax, corporate income tax, and cross-border consumption tax administration frameworks; the response cycle of tax system reform has also shortened from over eighty years initially to around ten years. The core impact of AI lands on the labor tax basejob contraction and worker income divergence will directly weaken the stability of labor-related tax revenue. Through a comprehensive assessment using four indicatorsAI exposure, labor share, labor tax dependence, and fiscal vulnerabilityGermany, the US, and Japan rank highest in tax system risk exposure, while emerging economies face relatively smaller shocks. Against the backdrop of globalization and great-power industrial competition, improving rules within the existing tax framework may be the more feasible response at this stage. However, it cannot be entirely ruled out that the US, Europe, and other economies under greater fiscal pressure may push for the creation of new tax categories. **How Have Past Technological Advances Affected Taxation?** If AI is viewed as a new wave of transformative general-purpose technology, then the experience of how past technological revolutions reshaped tax systems serves as an important historical reference for understanding the changes of the current era. Labor, capital, and consumption constitute the three major tax bases of modern fiscal and tax systems. The First Industrial Revolution expanded the potential tax base of personal incomethe UK was the first to levy personal income tax in 1842, followed by Austria (1849), Italy (1864), Japan (1887), and others. The Second Industrial Revolution expanded the potential tax base of corporate incomeJapan independently levied tax on corporate income in 1899, the US introduced corporate income tax in 1909 under the name "excise tax on business privileges," and subsequent wars accelerated the global spread of corporate income tax. The Internet Revolution drove continuous improvement of consumption tax administration systemsthe 1998 Ottawa Conference formed a global multilateral coordination framework, the 2013 G20/OECD launched the 15 BEPS Action Plans, and in 2021, over 130 jurisdictions under the BEPS Inclusive Framework reached consensus on the two-pillar international tax reform. **How Does AI Affect the Three Major Tax Bases?** AI's impact on the labor tax base is mainly reflected in job contraction and wage divergence. Acemoglu & Restrepo (2020, 2022) estimate that for every additional Siasun Robot&Automation per thousand workers in the US, the employment-to-population ratio declines by 0.180.34 percentage points and wages decline by 0.25%0.5%. Challenger, Gray & Christmas data show that from January to August this year, over 100,000 layoff announcements in the US mentioned AI factors, accounting for more than 20%. AI may weaken the taxability of the capital tax base. The computing power layer of the AI industry chain faces depreciation rule disputes, the data layer faces measurement difficulties, the model layer faces pricing challenges, and the application layer faces applicability gaps in determining tax source location, distinguishing labor services from business profits, allocating withholding obligations, and taxing at the place of consumption. Moreover, the non-neutrality of the current tax system may amplify AI's impact on taxation. The consumption tax base will also face structural weakening brought by AI. Wages are one of the main sources of funding for household consumption. AI compresses household income through two channelsjob contraction and wage pressureindirectly affecting the consumption tax base. Additionally, AI supports consumer self-generated content replacing original external procurement, compounded by subscription sharing, prepaid pay-per-use consumption, and multi-layer API call routing models, amplifying issues of tax base omission, measurement difficulties, and tax payment timing mismatches. **Which Countries' Tax Systems Are More Vulnerable?** Focusing on the labor tax base, CMSC constructed in its report a comprehensive risk exposure measured across four dimensions: employment share of high-AI-exposure occupations, labor share, labor tax dependence, and fiscal vulnerability. From the perspective of AI exposure, developed economies possess both higher AI readiness and higher shares of high-exposure jobs, with labor tax bases facing greater potential substitution risk; emerging markets have lower AI readiness, and the employment share of high-AI-exposure jobs is generally lower. From the perspective of labor share and labor tax dependence, Western and Northern European developed economies (Germany, France, Austria, Finland, Spain, etc.) have labor compensation exceeding 55% of GDP, with more than half of total tax revenue coming from labor-related taxes. From the perspective of fiscal vulnerability, the top five countries in the sample ranking are Japan, Greece, Italy, the US, and France, with Japan's pressure mainly stemming from its extremely high broad debt burden ratio and old-age dependency ratio. Overall, Germany, the US, and Japan have the highest comprehensive risk exposure; Sweden, Finland, France, and Canada are in the relatively high range; and emerging market countries face significantly smaller comprehensive shock intensity. **How to Respond to AI's Impact on Taxation?** Facing the potential tax impact of AI technology, academia and policy circles have currently formed two mainstream approaches regarding tax system adjustment paths. First, adding new tax categories (Siasun Robot&Automation tax). Guerreiro, Rebelo, and Teles (2021) point out that when workers with fixed skills who are difficult to reassign remain employed, taxing Siasun Robot&Automation is the optimal policy; Thuemmel (2019) proves that the optimal Siasun Robot&Automation tax rate in the US is positive. However, opponents argue that a Siasun Robot&Automation tax may inhibit innovation, and furthermore, Siasun Robot&Automation itself does not possess the qualification to be a tax subject. Second, optimizing rules within the existing framework. The Council Directive (EU) 2022/2523 adopted by the EU on December 14, 2022 established a 15% global minimum effective tax rate, applicable in major jurisdictions from 2024, constituting indirect taxation of profits of large multinational enterprises (including digital and AI companies). CMSC points out that rule optimization within the existing framework is more aligned with current reality. From the First Industrial Revolution to the UK's pioneering introduction of income tax in 1842, from the Second Industrial Revolution to Japan's independent introduction of corporate income tax in 1899, from the Internet Revolution to the 1998 Ottawa Conference, the lag time for tax system responses has shortened from over 80 years to around 30 years, and then to about 10 years. However, the triggering factors for tax system reform are not driven purely by technological shocks. The key lies in whether AI triggers a fundamental shift in the pattern of social wealth distribution. Looking back at history, the center of social wealth shifted from landowners to wage-earning laborers, then to corporate capital income, expanding the tax base foundation for new tax categories such as income tax and corporate income tax; but the implementation of new tax categories often still requires external catalysts such as fiscal pressure. A single country introducing an entirely new structural tax category targeting AI could easily trigger cross-border tax base outflow, but it cannot be entirely ruled out that the US, Europe, and other economies under greater fiscal pressure may push for the creation of new tax categories, and resistance to globally unified reform is also significant. Currently, promoting tax system neutrality, optimizing income structure, reducing fiscal reliance on a single wage bill, and participating in the formulation of rules for data elements and cross-border digital servicesrule optimization within the existing frameworkare more aligned with current reality. This article is based on the CMSC report "How Will AI Impact Taxation? AI and Macro Series Part II" dated September 24, 2026. Report authors: Zhang Jingjing, Chen Ying; GMTEight editor: Wenwen.