Tax governance in the world of Industry 4.0

We’ve seen that Industry 4.0 has rapidly become a global priority for enterprises and governments alike, due to multiple benefits. Yet, while we are beginning to understand the economic, business, and social impacts of these changes, the impact of Industry 4.0 on tax policies is still largely ignored.

Looking back

The foundations of the current international tax system were built a century ago to address the changes of the Second Industrial Revolution, and have been updated only slightly to address the changes brought forth by the Third. Historically, tax systems have been developed to reflect the cost optimisation strategies defining industries during the 20th century. Examples vary, from tax incentives for investment, to transfer pricing regulations targeting complex supply chains.

Looking towards the future

The Fourth Industrial Revolution brings with it profound change, and our international tax system is simply no longer fit for an age where predictive maintenance, artificial intelligence (AI), and smart factories rule the day.

A recent article that I wrote with some colleagues examines different Industry 4.0 scenarios that reflect the magnitude of the challenges ahead, and the unique challenges each brings for both business executives and policymakers.

However, despite the differences between these scenarios, we found certain policy questions remain consistent across all. They are:

• Direct tax
• Indirect tax
• Employment tax

By understanding the specific ways in which industry 4.0 technologies shift the way businesses operate, tax regulators and business leaders equally can begin to consider ways tax policy will need to adapt to the fourth industrial revolution.

It's worthwhile reading the full article which can be found here. If you'd like to read more in our collection of Industry 4.0 articles, visit our Deloitte Insights site.