The Role Of Artificial Intelligence In Tax Administration And Compliance: A New Era Of Digital Taxation

Abstract

Digital taxation also known as electronic taxation has recently opted for a new shift through artificial intelligence also known as AI in this modern society. This paper aims at reviewing the efficiency of existing and emerging technologies in the improvement of tax systems, including the machine learning, natural language processing (NLP), robotic process automation (RPA), and blockchain. Such innovations let tax authorities treat routine actions as automated processes, better identify fraudulent schemes, and facilitate the communication with taxpayers as well as improve the overall efficiency of revenue collection. Success stories that present the results in taxation systems that include the USA, Great Britain, Australia, and Estonia show increases in the remittance rates and effectiveness after the use of AI. This means that AI has the potential of raising compliance rate by 10% and decreasing tax evasion by 20%; it also aids in efficiency of audits with minimal errors. Nonetheless there are still some disadvantages associated with the IOTs, it has high costs, stringent legal requirements, and data protection issues. AI adoption in tax systems currently differs and in this regard developed countries are in front in integrating AI in their tax systems, nevertheless developing countries are currently facing infrastructure and regulation barriers. Self generated surveys indicate that tax professionals overall have a positive perception of AI with 85% of the respondents accepting that it enhances efficiency of tax compliance. Based on the analysis it can therefore be concluded that AI is a central factor for the future of tax administration and for the continuing push towards improved digitalisation of tax systems, the decrease of the tax gap, as well as the improvement of fiscal governance. However, getting over the demanding implicative challenges will not be easy because it will require adequate investment in infrastructure, reforms on regulations and codes of ethics to protects taxpayers’ information.