On 12 October 2018 the World Bank issued World Development Report 2019: The Changing Nature of Work.
The report notes that technology is creating jobs, increasing productivity and delivering effective public services and suggests that public fears around innovation are unfounded. Technological innovation has already raised living standards and digital technology is spurring fast innovation and growth. Digital platforms and other new business models are evolving rapidly although these businesses often possess few tangible assets or employees. This business model can be described as “scale without mass” and is creating economic opportunities for people worldwide regardless of their location.
The report notes that technology is changing the terms on which people work and is creating more non-traditional jobs and short-term contracts. This increases flexibility but raises concerns about income fluctuations and lack of social protection. New forms of social security, regardless of employment status, are needed. The report recommends that there should be a universal guaranteed minimum level of social protection. Full social inclusion is expensive but can be achieved by reforms in labor market regulation in some countries and a global overhaul of taxation policy.
As enterprises cross borders and need fewer physical assets it becomes easier to shift profits to low-tax jurisdictions with the result that billions of dollars escape tax. The report emphasises that revision of the international tax system is required to deal with the globalized digital economy. As stated in the report the OECD has estimated that between USD 100 billion and USD 240 billion in tax revenue is lost each year as a result of base erosion and profit shifting (BEPS). There are opportunities for profit shifting through incorrect transfer pricing; strategically locating ownership of intellectual property; shifting international debt through intracompany loans; and treaty shopping. The report indicates that tax treaties are estimated to have reduced tax revenues in Africa by around 8.5% in the countries that have signed a tax treaty with an investment hub.
The digital economy poses new tax challenges by making it easier to locate activities in low tax jurisdictions. Digital firms can create profits from intangible assets such as user data, making it difficult to identify where value is created. In response the OECD has released a template for colleting value added tax (VAT) from digital suppliers and the OECD Task Force on the Digital Economy has released an interim report on tax challenges arising from digitization. The report notes that less has been done by emerging economies to ensure that digital supplies are adequately covered by their VAT rules.
The report suggests that governments could introduce a new freestanding tax on foreign suppliers of digital services. This would avoid conflict with the existing network of double tax agreements as it would be separate from the mainstream income tax system. It could level the playing field between domestic and foreign digital suppliers. With regard to VAT a registry of nonresident suppliers of digital services could enhance collection.
The World Development Report contains a section on the recently released Human Capital Index, which is part of a broader World Bank Group project examining human capital as driver of inclusive growth. The Human Capital Project includes a program to strengthen research and measurement on human capital and support countries to accelerate progress in human capital outcomes.
