AI in taxation
Governments are leveraging the benefits of AI and robotics in many fields like healthcare services, transportation, defense, and national security. Governments are rapidly accepting the use of AI, which is opening up new opportunities for innovation in government services, like taxation. Tax is the primary source of money for the government which is necessary to support all the public sector functions. Collecting taxes from citizens in a shorter time and reducing the number of tax defaulters increases the effectiveness and efficiency of tax collection. Effective and efficient collection of tax enables the government to make adequate investments in public sector functions.
The two most common purposes of robotics and AI in taxation are preventing tax default and providing services to taxpayers. With the help of AI and robotics, defaulters who are paying less tax or not paying tax at all can be easily found by analyzing and monitoring the financial data of the person. AI can provide improved services like automated tax filing and can also help educate taxpayers to comply with tax filing. There are many different areas of taxation where robotics and AI can be implemented.
The applications of robotics and AI in taxation
The use of robotics and AI in taxation consists of many narrow and sharp use cases. AI systems can be used to communicate differently with different groups of people. For example, a group of people who are under-reporting their income can be accurately identified and penalized, instead of investigating and requesting them to cooperate. Let’s get a closer look at some other benefits of robotics and AI in taxation:
Automating repetitive processes
One of the most basic and yet most useful applications of AI is process automation. The time-consuming tasks that comprise a tax professional’s workday are majorly repetitive processes which include processing documents, reporting, and others. Deploying AI-enabled robots to automate repetitive tasks would help tax professionals in performing repetitive procedures and allow them to focus on more intellectually challenging tasks. For instance, robots can be used to fill account numbers or asset ID numbers onto spreadsheets, and robots can be used for financial closeouts and reporting.
Tax professionals use accounting software to compute the financial data of a company. Robots can automatically enter information into accounting software from spreadsheets to reduce the burden on tax professionals. The use of robots will speed up lengthy procedures and get precise tax amounts faster. The faster a company receives the tax due, the more time it has to do the monthly, quarterly, and annual closing.
Extracting key data from tax documents
Before anything else can be done in the tax life cycle, a tax team has to classify documents, find the source of the documents that come in, and define what useful information is there in the documents. AI can accelerate the processes of classifying documents, defining the taxonomy of documents, and extracting the required data from these documents. ML algorithms can help AI-enabled robots to easily detect the capital gains and charitable contributions of a company, handle assessment notices and other matters that can be used to classify documents. Key data like the account number, number of payments on the tax bill, discount on the tax bill, and other data can be extracted effortlessly and with accuracy by AI-enabled robots. The accurate key data can then help for easy tax payment and filing the tax returns.
Identifying tax evasion
Tax evasion can hold back the development of a country to a certain extent. Hence, tax evasion has become a growing concern for many countries. Auditors try to identify fraud in the tax documents. Finding specific information from piles of documents can be like finding a needle in a haystack for auditors. With the help of ML algorithms, AI-enabled systems can be created that can sense anomalous entries in large datasets. Using predictive analytics, AI can help to fight against tax evasion. AI can detect fraud based on many aspects like the employment status of a person, whether an individual has been audited in the past or not, and allegations of illicit sources of revenue among others.
Scanning tax reports
Some people travel around the globe in an assessment year for various reasons. Such people need tax reporting according to the current region they are living, while paying tax, as they move through different geographies in a year. Different taxes according to different countries and their jurisdiction is enforced on such people. Gathering information from different countries is a time-consuming process. With the help of optical character recognition (OCR) and AI, the tax documents of the globally moving people can be accessed from anywhere, even by a smartphone. OCR and AI can together help in searching tax documents faster, as documents can be scanned and uploaded to a database. Searching database to find a document is much simpler than finding the physical form of a document.
Forecasting the burden of tax
AI systems can make tax forecasting more accurate with predictive analysis. Algorithms can detect sales trends on an annual, monthly, or even more frequent basis. AI algorithms can also use weather patterns to determine how sales in a particular region can be affected by climate change. Thereby, it can also determine how the impact on sales would effect the tax burdens. Forecasting can also be used to suggest when to reap the benefits of an investment. For example, imagine a person who has bought a share of a firm. With the help of historical trends, predictive analysis can detect what time of the year the stock of that company goes high and when the stock goes low. Accordingly, AI systems can suggest what time the person should sell the stock to reap the benefits and minimize the tax burden.
Bribing in taxation can ultimately lead to slowing down the development of a country. Bribes may be offered to government employees for many different reasons. Although there are laws enforced by the government to reduce corruption, there is not much decline in it. This is because monitoring every individual in the tax sector is next to impossible. There won’t be any place for corruption in an automated process for taxation. Also, monitoring a few robots instead of many people would be a lot easier. Hence, using AI-enabled robots for taxation can stop corruption and increase transparency.
Identifying possible tax deductions and tax credits
AI-enabled robots are well suited for performing in-depth data analysis. With the help of previous tax documentations for learning and predictive analysis, AI robots can get a thorough knowledge of taxes, and they can stay on top of yearly changes. This making it far easier for tax practitioners to identify areas to save money.
The use of AI has already hit the complex world of taxation. The applications of robotics and AI in taxation can help reduce workforce and burden on humans. The use of robotics and AI in taxation will also prevent the acts of bribery as unlike humans, robots are not susceptible to corruption. Instead of going for ambitious projects, government should implement robotics and AI in taxation at a small scale first to know whether the tax payers are comfortable using robots for the taxation process. The use of robotics and AI in taxation will certainly pace up the lengthy procedures of taxation and benefit the tax sector in general.