Exploring global laws while looking at other growth areas
While we look at the impact of global laws related to taxation and regulation of AI, we look at uncanny similarities in economic growth between India & China. Finally, we look at chip-making.
Do the tax laws favor the global rich?
In early December 2023, a case was opened in the US Supreme Court on the legality of certain tax laws that allow corporations to pay a one-off tax on their deferred foreign profits. This has raised questions on tax laws and if (and how) the global rich people get more benefit from these laws.
A retrospective analysis of the 2017 mandatory repatriation tax reveals its impact on corporations, mandating a one-time payment on deferred foreign profits. The legality of this measure is under scrutiny.
Wealthy individuals exploit various loopholes, with global billionaires averaging a mere zero to 0.5 percent payment of their wealth, as per a recent report.
While international bank information exchange has reduced offshore hiding, the affluent still leverage domestic real estate and shell companies to sidestep individual income tax.
Trillions in offshore profits from major US corporations were strategically moved before a reduction in the corporate tax rate and the cessation of the "worldwide" taxation principle. The shift to a 21 percent rate for US companies eliminated additional taxes on foreign profits.
The potential repeal of the mandatory repatriation tax raises concerns about its connection to proposed wealth taxes by Democrats and the potential legal ramifications in the US, disrupting existing tax norms.
Despite increased scrutiny, the global elite can still exploit favorable international tax structures. The transition from manufacturing to services to information has facilitated the offshore parking of wealth.
The EU Tax Observatory's Global Tax Evasion Report presents a compelling chart profiling profit shifting by US multinationals from 1975 to 2022. In the late 1970s, these companies recorded minimal revenue in tax havens, but today, over half their profits are attributed to such regions.
The world’s first set of laws to regulate AI has come
In a historic agreement following an exhaustive 37-hour negotiation between the European Parliament and EU member states, the world's inaugural comprehensive regulations for artificial intelligence (AI) have been established. While precise details of the forthcoming law, slated for implementation no earlier than 2025, remain scant, pivotal aspects of the accord have been disclosed.
The European Parliament successfully secured a prohibition on the real-time use of surveillance and biometric technologies, encompassing emotional recognition.
However, three exceptions were carved out, allowing law enforcement to deploy these technologies solely in response to unforeseen terrorist threats, the necessity to search for victims, and the prosecution of severe criminal offenses.
At the core of this landmark agreement is a risk-based tiered system:
The most stringent regulations apply to machines posing the highest risks to health, safety, and human rights. The upper echelon of risk, as defined in the accord, is determined by the volume of computer transactions required to train the machine, measured in "floating point operations per second" (Flops).
Insiders reveal that the only existing model falling within this heightened risk category is GPT4.
Meanwhile, the lower tier of regulation imposes significant responsibilities on AI services, encompassing fundamental rules regarding the disclosure of data used in training machines – whether for tasks as diverse as crafting a newspaper article or diagnosing cancer.
This groundbreaking legislation marks a pivotal step towards addressing the ethical and societal implications of AI while striking a balance between innovation and safeguarding individual rights.
Moore’s law & chip making
The relentless pursuit of smaller and faster semiconductors, as dictated by Moore's Law, has been a driving force in the chip industry, influencing diverse sectors from PCs and smartphones to artificial intelligence.
Even marginal advancements in miniaturization lead to significant improvements in computing task complexity.
In the field of generative AI, experts assert that achieving the necessary computing power demands chips of 4 nm and smaller.
Major players like TSMC, Intel Corporation, and Samsung Electronics have invested billions annually to push the limits of Moore's Law, establishing a significant lead in the industry. This has resulted in a dichotomy where leading companies strive for 2-nm chips by 2025, while others, particularly Chinese chip manufacturers, struggle to keep pace.
Challenges intensified following U.S. export controls in 2019, further tightening subsequently.
The question looms: is there a threshold to transistor miniaturization, limiting the number that can be packed into a chip the size of a fingernail?
Chiang Shang-yi, former head of R&D at TSMC, contemplates the potential repercussions if Moore's Law indeed reaches its pinnacle, anticipating a profound impact on the semiconductor industry.
Is India’s economy following the path of China?
India's economic landscape and demographic makeup closely mirror that of China in the late 1990s and early 2000s, hinting at the possibility of two more decades of robust and sustained growth, accompanied by a significant surge in energy consumption.
In 2022, the real gross domestic product per capita at purchasing power parity soared to $7,100, a milestone China achieved in 2007/08 ("World development indicators," World Bank, 2023).
Although the median population age has risen, standing at 27.9 years, it remains relatively low, akin to China's demographic profile in 1998 ("World population prospects," United Nations Population Division, 2022).
Over the decade from 2012 to 2022, population growth averaged 1.1% per year, aligning closely with China's experience from 1988 to 1998 ("World population projects," United Nations Population Division, 2022).
The estimated urban population share reached 35% in 2022, reminiscent of China's urbanization level around 2000 ("World urbanisation prospects," United Nations Population Division, 2018).
With an energy consumption rate of 26 gigajoules per person in 2022, India matches the pace China set in the early 1990s ("Statistical review of world energy," Energy Institute, 2023).
Notably, total oil consumption surged to 237 million metric tons in 2022, a benchmark China achieved in 2001 ("Statistical review of world energy," Energy Institute, 2023).
The challenge of severe air pollution in major Indian urban areas, including Delhi, mirrors China's experience in the 1990s and 2000s, where pollution was estimated to reduce life expectancy by up to five years.
While acknowledging that no two countries tread the identical path of economic development and energy consumption, it is crucial to recognize that India is poised to carve its distinctive trajectory, encountering its unique set of challenges.
The rapid, sustained, and monumental growth witnessed by China throughout the 2000s and 2010s, stemming from the transformative reforms initiated in the 1980s and 1990s, serves as a valuable indicator. Although India will chart its course, the scale and direction of the changes ahead may find resonance with China's remarkable journey.