Archive · 1 Sep 2026
AI Tax Debate Weighs Worker Safety Nets Against Growth
Artificial intelligence can help companies do the same amount of work with fewer employees.
This may move more money from workers to companies.
J.B. Mohapatra said governments could tax some AI-related gains or usage.
The money could be placed in a special fund to help people who lose jobs learn new skills.
Companies that retrain their workers could also receive tax credits.
India faces a challenge because it gives some foreign companies using Indian data centres a full tax holiday until 2047.
Mohapatra warned that taxes could slow AI growth, hurt companies with small profits and cause trade disagreements.
He said governments must also identify vulnerable jobs and create other protections because tax is only part of the solution.
Former tax official J.B. Mohapatra said AI taxation could fund support for workers displaced by automation.
He proposed directing AI-related tax revenue into a trust or dedicated fund for training, retraining and rehabilitating affected workers.
India offers foreign companies using Indian data-centre services a 100% tax holiday until 2047 under the Finance Act 2026.
Mohapatra suggested starting with a modest AI-consumption levy while warning that taxation alone cannot solve job displacement.
The OECD’s 15% global minimum tax has broad support, but India has not legislated it and the framework remains incomplete.
- Who
- J.B. Mohapatra, former chairman of the Central Board of Direct Taxes; Raghuram Rajan and other experts have also supported considering AI taxation.
- What
- A proposal to tax AI usage or AI-related productivity gains to finance support for workers displaced by automation.
- When
- The debate includes a United States congressional bill introduced in June 2026, India’s Finance Act 2026 and OECD results reported for 2024.
- Where
- The discussion was reported from Chennai and concerns India, the United States and international tax arrangements.
- Why
- AI may shift wealth from labour to capital and eliminate jobs, prompting calls for worker support while preserving AI-driven growth.
Support targeted AI taxation
Prioritize growth and broader solutions
Funding worker protection
Support targeted AI taxation
Taxing AI-driven productivity gains could create a corpus or trust fund for retraining and rehabilitating displaced workers.
Prioritize growth and broader solutions
Taxation should be only one part of the response; governments must also profile vulnerable sectors, classify irreplaceable jobs and create financial buffers.
Taxing AI in India
Support targeted AI taxation
India could begin with a modest levy on AI consumption to address potential wealth concentration and labour displacement.
Prioritize growth and broader solutions
A levy must be introduced carefully because India is promoting AI investment and provides a 100% tax holiday for eligible foreign companies using Indian data centres until 2047.
Digital services taxation
Support targeted AI taxation
New international or bilateral arrangements could give market economies a share of profits generated by digital companies operating across borders.
Prioritize growth and broader solutions
Unilateral digital services taxes often tax revenue rather than profit, can burden loss-making companies and may prompt retaliation from the United States.
- Proposed use of AI tax revenue
- A dedicated or trust fund could finance training, retraining and rehabilitation for displaced workers.
- India’s data-centre tax policy
- Foreign companies using Indian data-centre services receive a 100% tax holiday until 2047 under the Finance Act 2026.
- Possible Indian levy
- Mohapatra suggested considering a modest levy on AI consumption rather than taxing production alone.
- Earlier Indian precedent
- A 5% R&D cess on imported technology previously funded the Technology Development Board.
- Global minimum tax
- Under Pillar Two, 140 countries agreed to a 15% global minimum effective tax; 55 have legislated it, while India has not.
- Reported OECD impact
- The OECD’s 2024 results indicated a 1.7% increase in the effective tax rate and an estimated $90 billion-$134 billion in additional taxes.
- Pillar One status
- The proposal to redistribute some profits of the largest multinational companies to market economies stalled after the United States withdrew from deliberations.
