By OLATUNDE BAKRE

Nigeria as a piece of the global financial landscape is drifting along, albeit surely and unavoidably, with the innovative trend most of which are disruptive to human capital deployment in business strata. In every workplace and until the recent past, driving efficiency is hinged on adopting some form of automation, process re-engineering and management restructuring most of which require appreciable level of human capital development alongside. Hence, by and large, the effect of this effort actually gave greater empowerment to workers in the form of improved benefit and greater workers engagement because of the need to drive growth; therefore the effect on tax revenue through PAYE was almost negligible.

Now, Artificial Intelligence, AI, has made the development of autonomous humanoids and machines our reality — and in the nearest future, we must be prepared to confront the reduction of human beings in production and service processes. We should know that since our tax revenue thrives on the number of workers in employment, then any system that seeks to make number of workers inversely proportional to productivity, such as autonomous machines and humanoids, are inimical to growth of tax revenue most especially for the subnational. 

The rapid integration of these autonomous technologies as core business and service delivery engines has now presented the Relevant  Tax Authorities,RTAs, with pertinent questions to rethink:  What exactly should we be taxing(humans vs machines/Process)?  Where is value created(local vs digital/global)? And who should get the tax(federal vs state)? As it is, AI is changing what generates tax money and where it comes from. We now have generative AI replacing knowledge workers (accountants, lawyers, analysts), not just factory or service floor workers.

This matters because those white-collar workers were among the highest PAYE contributors per capita; so their displacement carries an outsized revenue impact. And unless tax systems adjust, states and local governments may end up with dwindling IGR that derives from tax. Another downside of AI  is its enablement of the  gig economy which is causing the phenomenon called “tax decoupling”. This is a situation  when companies are becoming more productive and profitable, but governments are not capturing equivalent tax revenue. Autonomous technology has made wage protection less priority and diminished standard benefit in the workplace because it has effectively decoupled wage growth and productivity growth. In big cities, the percentage of stealth workers is growing such that it is becoming difficult to bring their footprint into conventional tax net such as PAYE returns or CAC database.

In recent times, companies have started announcing several hours being saved with the adoption of AI.  This seems impressive progress that is desirable. However , the RTAs should actually be concerned because this progress translates to an erosion of  PAYE tax revenue, abstraction of place of value creation, widening of the gap between wage growth and productivity and will ultimately skew tax revenue disproportionately against the intent of established guardrail: The Constitution. This means we start seeing increase in corporate tax revenue and significant reduction in taxable labour (PAYE revenue). In private sector, we all know that the primary motivation and drive  is bottomline. 

Moreover government policy of investment tax credit (focus mainly on machinery and automation) operationalised as capital allowance in Nigeria  incentivises companies to see investment in AI  technology  as a means of reducing their tax liability while enhancing their productivity. In addition, companies see  government policy such as pension contribution, NSITF, HMO, NHF and  ITF training contribution as additional tax that arose from hiring more staff, while such do not exist if the company chooses automation and even get tax benefit.

In order to mitigate this impending fiscal drag, our RTAs must restructure the tax base. We are now in the era in which machines are equivalent to humans; so systems should be put in place to tax them. There is nothing bad if capital allowance on automation machines, autonomous technology and Intangible assets is replaced with capital allowance on ITF accredited training cost.  The tax authorities must revolutionise their approach to start viewing certain portion or whole of PPE (Plant, Parts and Equipment) as taxable labour. 

Our government and RTAs should know that human capital development is an asset in which companies should be incentivised. The state government and the local government should drive a change to tax law that will provide that machines be indexed to the number of workers they replace. This will enable RTAs to tax PPE value (including maintenance and repair cost) located in every jurisdiction to favour the subnational. They should also prioritise training and skill update of workers as well as lobby for elimination of NSITF, HMO, NHF and  ITF training contribution, and also be able to be beneficiary of PPE tax that is located within their jurisdiction.

In conclusion, the slogan to broaden tax base should not just be driven by limiting it to human beings alone. This is an era of Generative AI , autonomous machines and humanoids which we no longer doubt can effectively replace taxable labour. It follows, therefore, that our RTAs must begin crafting forward-thinking policy — before the fiscal ground shifts entirely beneath them. 

•Bakre, Digital Ethicist and Managing Partner, Homo Economicus Limited, Lagos, wrote via: olatunde@heconomicus.com