Rapid advancements in Artificial Intelligence (AI) are reshaping industries worldwide, and tax compliance is no exception.
AI’s immense potential in addressing some of the most persistent challenges in indirect tax compliance cannot be overstated. Indeed, AI is emerging as a key tool in streamlining operations and ensuring compliance with evolving regulations.
Whether it’s supporting tax authorities in the quest to more easily identify cases of VAT fraud or enabling business users to seamlessly check for missing tax data, scan tax documents or scrutinise existing data to pinpoint issues, the potential value of AI is enormous.
Here, we take a look at five ways AI is set to revolutionise the tax industry over the next five years:
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Navigating complexity
Managing indirect taxes – whether VAT, GSTGoods and Services Tax, or Sales and Use Tax – is daunting; the sheer volume of tax jurisdictions, rate changes, and regulatory updates creates an environment ripe for errors. AI’s ability to process vast amounts of data, identify patterns, and learn from them addresses this complexity head-on.
Automation can pinpoint discrepancies, optimise tax code mappings, and ensure real-time compliance.
As the regulatory landscape grows more intricate, AI-powered tools have the potential to reduce manual intervention in tax compliance drastically. From automating tax rate updates to accurately mapping complex cross-border transactions, AI is transforming how businesses approach tax obligations.
By analysing historical data and learning from evolving regulatory changes, AI solutions can provide proactive compliance strategies, reducing the risk of penalties and disputes.
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Augmenting human expertise
AI complements rather than replaces the expertise of tax professionals. By automating routine tasks that typically consume vast quantities of time and budget, AI allows professionals to redirect their focus to higher-value activities, such as strategic planning and navigating complex regulatory requirements.
This collaboration between human insight and machine efficiency creates a robust approach to tackling indirect tax challenges.
However, the implementation of AI is not without its challenges. Businesses must address concerns around data accuracy, integration with legacy systems, and training.
While AI excels at processing data and recognising patterns, it cannot yet fully account for the nuanced judgment required in certain tax scenarios. Organisations must carefully balance the use of AI with the oversight of skilled professionals to ensure compliance remains both efficient and accurate.
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Detecting tax fraud and errors
Tax authorities have been leveraging AI to detect fraud and errors effectively. Predictive modelling enables the identification of flags for tax fraud or inconsistencies, with cloud-based AI systems capable of reviewing colossal volumes of data.
These systems have proven particularly adept at spotting irregularities in special grants, seasonal tax deductions, or unusual fund flows.
Long-standing Computer-Assisted Audit Tools and Techniques (CAATTs), traditionally used for detecting international tax avoidance, are now heavily enhanced by AI.
This advancement allows authorities to tackle tax fraud and errors with unprecedented precision, safeguarding public revenues and fostering compliance among taxpayers.
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Improving the taxpayer experience
Tax administrations owe a duty of care to the public, ensuring fair and efficient outcomes. AI is revolutionising the taxpayer experience by enabling faster, improved communications and streamlined processes.
From automating routine inquiries to providing real-time updates, AI-driven systems enhance the interactions between tax agencies and taxpayers.
In addition to boosting efficiency, these advancements foster greater trust and satisfaction among the public. By minimising response times and providing accurate, timely assistance, AI ensures that taxpayers receive the support they need while fulfilling their compliance obligations.
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Boosting internal operational efficiencies
The ability of AI to extract and analyse trends from vast amounts of data is cutting down on costly and unreliable manual interventions. AI’s capacity for accurate and rapid processing improves resource allocation, fraud detection, and the handling of public or governmental inquiries.
Examples of areas where AI enhances tax administration processes include:
- Neural learning for VAT compliance obligations.
- Prediction of errors and fraud to optimise resource allocation.
- Sensitivity analysis for transfer pricing versus VAT.
- Natural language translations of tax laws into practical guidance.
- Q&A chatbots for taxpayer inquiries.
- Augmentative structures to identify patterns in court decisions.
These tools not only improve operational efficiencies but also ensure that tax agencies can respond to challenges more effectively and in a cost-efficient manner.
Examples of tax authorities using AI
Tax authorities worldwide are increasingly adopting AI to enhance compliance and combat fraud. Here are some notable examples:
- UK: HMRCHis Majesty's Revenue and Customs is a non-ministerial department of the UK Government responsible for the collection of taxes. is developing a Large Language Model to identify VAT evasion.
- Greece: A specialist AI unit is using MyDATA VAT transactions to detect fraud.
- Austria: AI-driven initiatives target missing trader VAT fraud with remarkable success.
- Romania: AI adoption has boosted VAT receipts by up to 1% in the last 12 months.
- Italy: Using AI algorithms, including VeRa, the Italian tax authority identified over 1 million high-risk cases in one year.
- Vietnam: AI flags firms issuing suspicious invoices, helping to reduce taxable revenue fraud.
- Australia: The ATO’s AI systems have identified over $530 million in unpaid tax and prevented $2.5 billion in fraudulent claims. Gradient-boosting machine learning models have been especially effective in combating GST fraud.
- India: AI is used to detect fraudulent GST registrations and falsified income tax deductions through the Business Intelligence and Fraud Analyst (BIFA) site and other tools.
Other countries, such as Canada, the Netherlands, and Sweden, are also using AI technologies to enhance compliance, detect fraud, and streamline administrative processes.
How we can help
Staying compliant in an environment of increasingly effective AI-powered tax authorities requires proactive measures. We ensure businesses remain ahead of the curve by providing tailored solutions that align with the latest advancements and regulatory updates.
By leveraging our expertise and bespoke solutions, we can help you maintain compliance and confidently navigate the complexities of modern tax systems.