Is tax the low-hanging fruit to harness public-purpose tech?
By Angela Homsi, Co-founder of Ignite Power
It seems many parts of our economies are becoming “smarter” these days: smarter energy, smarter marketing, smarter logistics, smarter transportation, and so on. How about a smart tax system, too? One that looks through the single bottom-line, equipped with new transparency superpowers for a fair redistribution.
“The only constant in life is change,” said Heraclitus, some 2,500 years ago. The quote seems more relevant than ever before: we live in an age where technology is rapidly changing every sector of our lives, is increasingly interconnected with the public good and human development, and sheds light on better models of growth. From the health system to the education sector, technology is reshaping industries as well as the understanding and delivery of public goods.
To enable a truly inclusive and sustainable technological future, governments must take on an increasingly active role in harnessing and supporting the scale-up of the most positively impactful technologies for the benefit of society as a whole. Governments can perform three key roles in facilitating this process: as enablers (through building infrastructure, social good projects, and more); as regulators (by setting minimum standards of safety, quality, and other rule-based entities); and as redistribution agents (through tax systems and other incentive schemes).
A New Taxation Mechanism as a Starting Point
Of these three, tax is the low-hanging fruit that is too often overlooked. Yet a reform of taxation systems could have near-immediate impact. The primary objective would be to support a transition towards public-purpose technology thanks to a redistribution mechanism of taxes devised to incentivize behaviors contributing to the greater social and environmental good.
A new taxation mechanism based on how a company benefits or otherwise hurts society could change the way companies choose to operate their businesses. An example for this type of taxation philosophy is a carbon tax, a fee imposed on the burning of carbon-based fuels, presenting a core policy for reducing and eventually eliminating the use of harmful fossil fuels. Carbon taxes were formed to shine a fiscal light on the "hidden" social costs of carbon emissions, decreasing demand for high-emissions producing goods and incentivizing efforts to establish less carbon-intensive operations. Carbon taxes are already used widely and are deemed by economists around the world as a good model to decrease pollution. Alongside carbon taxing and pollutants, other practices that impact society and the wider environment should be considered for taxation.
Private sector companies reinforcing government social missions and overall contributing positively by using their innovative powers to the benefit of society would be rewarded or supported through taxation regimes by lower corporate tax rates. Neutral businesses taking a “business as usual” approach, without any public-oriented clear benefits from their products or services should pay the typical taxes. Companies deemed public offenders (for example, polluters in all forms, products that have negative health outcomes) should pay extra taxes, to compensate for the cost to society that they trigger: social and environmental actuarial fiscality. This new mechanism would be rooted in the following sequence:
Measure the social and environmental net cost or saving that a company creates though its core business and through its externalities, using a widely agreed standard (many are already working on this from SASB to Harvard and other reputable researchers) and appropriate measurement for businesses of different sizes to avoid a one-size fits all approach;
Assess the costs or savings it generates for the state, which usually has a duty to address the issues at-hand through tax-payers’ money;
Tilt the companies’ corporate tax rate accordingly to acknowledge their contribution or cost to society. Such taxation would then structurally incentivise applications of technology that support the public good, and incentivise them with reduced taxes, subsidies or preferential procurement.
To begin such a system, a designated organization would be devised inside the taxing entity in any country seeking to experiment with the approach, responsible for setting simple, transparent, well-communicated ground rules that would determine the social impact status of companies, as well as the specific tax incentive or levy that would be imposed for every level of beneficial or harmful practices. This carrot and stick system could play a pivotal role in tipping the odds of attracting sustainable business practices and impactful technologies while making it harder for public offenders to set up shop with disregard for the wider society.
This is true for old industrial economies with massive tax bills, huge healthcare costs, and outsized carbon emissions. This is urgent for a continent such as Africa that direly needs smart solutions for the most basic human needs, such as electricity access, clean water, healthcare, education, financial services, and more. As some African nations, such as Rwanda, Egypt, and Nigeria, are embracing technology more readily, the historically troubled relationship between the private sector and society could be mended by showing how they benefit each other. By providing entrepreneurs and innovators with the best starting point possible to grow their innovation and impact, governments can enjoy multiple bottom lines, impacting hundreds of millions of people in need, boosting the economy, and leading the entire continent into a better future for all.
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