The Impact of Digitalisation on Personal Income Taxes

(2021) British Tax Review 2, 154-168

16 Pages Posted: 27 Apr 2021 Last revised: 20 Jun 2021

See all articles by Rita de la Feria

Rita de la Feria

University of Leeds

Giorgia Maffini

University of Oxford - Said Business School

Date Written: May 25, 2021

Abstract

This paper considers the potential impact upon personal income taxes (PIT) of the acceleration of digitalisation and remote working due to the COVID-19 pandemic. The societal changes brought about by the digitalisation of the economy affect all areas of the tax system. Until now, however, most attention has centred on corporate income taxes, and to a lesser extent VAT. What has been comparatively neglected is how the spread of remote working – and particularly inter-jurisdictional remote working – has the potential to trigger very significant challenges to PIT systems. In this paper we argue that some remote working is set to continue post-pandemic, and that some of it is likely to be inter-jurisdictional. These mobile workers are likely to be at the top of the income distribution, and thus even assuming a small number of mobile workers revenues loses can be significant. In the UK we estimate that the overall revenue loss – i.e. combined PIT and SSCs revenues – could amount to between £6.5 billion and £32.5 billion. This new mobility of workers at the top of the income distribution is also likely to have distributional impact, as well as significant spillovers in other taxes, in particular for CIT and for consumption taxes. These challenges are particularly problematic for PIT systems -like that in the UK- which are heavily reliant on PITs as total percentage of revenue, as well as on a relatively small number of high-income – and now potentially mobile - taxpayers. We conclude that the challenges of adapting our tax systems to a digital economy are far from over; indeed, they have just started.

Note: “This material was first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 5AQ, in the British Tax Review as The Impact of Digitalisation on Personal Income Taxes (2021) British Tax Review 2, 154-168 and is reproduced by agreement with the publishers”.

Keywords: Digital economy, remote working, personal income taxes, tax competition, COVID19

Suggested Citation

de la Feria, Rita and Maffini, Giorgia, The Impact of Digitalisation on Personal Income Taxes (May 25, 2021). (2021) British Tax Review 2, 154-168, Available at SSRN: https://ssrn.com/abstract=3835095 or http://dx.doi.org/10.2139/ssrn.3835095

Rita De la Feria (Contact Author)

University of Leeds ( email )

School of Law
Liberty Building
Leeds, LS2 9JT
United Kingdom

Giorgia Maffini

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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