The impact of AI on taxation is multifaceted. On one hand, AI can automate routine tasks, enhancing efficiency and reducing errors in tax compliance. This can lead to increased productivity and better decision-making. AI tools have been successful in promoting voluntary tax compliance and generating additional revenue. For instance, India's Income Tax Department used AI to identify non-compliance, resulting in over ₹11,000 crore in additional tax revenues from updated returns.
AI can also streamline tax compliance by automating tasks such as data processing, extraction, and calculation. This allows tax professionals to focus on more complex and strategic work. However, there's concern that automation might drain government revenues, particularly if a proposed AI moratorium were to block state tax laws on online commerce, software-as-a-service businesses, and other tech-related activities.
Such a moratorium could lead to significant revenue losses and give fraudsters a pass. As AI continues to evolve, it's essential for tax authorities and professionals to adapt and leverage its capabilities. This includes establishing robust governance frameworks to oversee AI integration, providing training on AI interpretation, automation, and data analysis, and using AI to monitor regulatory changes and predict compliance issues.
By harnessing the potential of AI, governments and tax professionals can improve efficiency, accuracy, and revenue generation. The future of taxation will depend on how effectively we can balance the benefits of AI with the need to ensure fair and effective tax compliance.
