Transforming taxation with data and AI
All over the world, public finances are being squeezed, forcing governments to seek innovative ways to safeguard tax revenue and make services as user-friendly as possible.
On a recent webinar, Global Government Forum, along with knowledge partner SAS, brought together a panel of four experts to discuss how governments are rising to the challenge of reforming tax systems, including through the use of data and AI.
Angela Render, chief of the content strategy branch, online services at the United States Internal Revenue Service (IRS), said she and her team spend a lot of time thinking about how to use data to make good decisions and provide a better customer experience.
She said that technologies such as AI provide “exciting opportunities” but added: “We [must] treat AI and technology as a tool, and not some sort of magic wand that will fix everything.”
That being said, Render sees enhancing the search functionality of the IRS website as one of the biggest opportunities.
“The public expects the site search to perform as well as the big search engines, and it currently doesn’t,” she said.
“We’ve heard from more than one person that their journey onto irs.gov starts with a commercial search engine that drops them onto a specific page. If they need more information, they will try the site search, and if the results aren’t useful, they return to the commercial engine.”
Another way in which AI can help improve the IRS’s service is through voice bots and chatbots, which though already in use have yet to exploit the potential of generative AI. Large language models (LLMs) such as ChatGPT have the potential to give information to users on demand.
However, Render noted that accuracy is imperative: “There might be some industries where a 95% accuracy rate is acceptable. For the IRS, it is not.”
Render also highlighted the dual challenge of training AI and “making sure the source material is usable by both people and the AI”.
“In the research I’ve done, both what I’ve read from others and what I’ve seen with my own personal tests, the source material matters,” she said. Fortunately, she explained, IRS has learned that if it formats the content in a way that is “useful for people…structured and tagged for accessibility, and…written in plain, understandable language”, it is easy for an AI to ingest and feed back to people.
“As we train the AI, the AI will also be training us,” she said.
AI can also help with identifying actionable customer feedback, she concluded.
Collecting revenue ‘fairly and efficiently’
Joseph Caruana, commissioner of the Tax and Customs Office of Malta, outlined how the government has set out a clear vision to collect revenue “fairly and efficiently by implementing best practices…and becoming an employer of choice in order to protect Malta’s borders and contribute to its economic and social wellbeing”.
Caruana noted that taxes constitute “more than 80% of government revenue”. This underscores the importance of collecting all taxes through voluntary compliance and ensuring that customs controls are effectively applied to “protect Maltese citizens, economy and the environment”, as per the modernisation model the government has embarked on.
Malta is in the process of establishing a new system which will enable customs and tax to interact with each other. This, together with all the initiatives currently in play under the government’s digital transformation strategy, aims to make the government “more agile” in using data and more proactive in using technology to modernise its tax system.
However, Caruana also touched upon one of the key threads of the discussion: investment in people, not just technology. Without the former, he said, “you will not be able to achieve the results that you expect”. Motivating and retaining the current workforce, as well as “investing in new blood” to transform services, he said, remains a priority.
Secret weapon
Shaun Barry, global director of the risk fraud and compliance division at SAS, said data analytics can be seen as a “secret weapon” when it comes to transforming tax administration.
He refined the point further by describing analytics as the secret weapon, to which data provides the lifeblood or “oxygen”. Examples of where this is being deployed include revenue forecasting, taxpayer services, cybersecurity, and micro-simulation, where governments are using analytics to model changes in tax policy or laws.
Sharing data is “not a magical exercise” said Barry but stressed that using the data that you have “is a powerful way to generate insights that can help tax administrators to advance”.
Adriano Subira, tax advisor for the National Congress of Brazil, shared how his country has adopted widespread use of electronic payment methods, before explaining how the government is going about making life easier for taxpayers.
“The heart of this tax reform system is assisted tax assessment and the massive use of smart electronic payments. Every tax code, every law, is an algorithm. We are translating the law that is written in natural language into machine code,” he said.
Each electronic invoice is currently authorised by the tax administration, but Subira said the government wants to give the taxpayer more independence to “record the sale, fill the invoice, and let the tax administration do the rest”.
Brazil is made up of what Subira calls three “levels or spheres”: the union, 27 states, and 5,500 municipalities. “We are like the European Union,” he joked. The country’s tax system reflects this complexity, with five different taxes “split and distributed among the federated institutions – the union, states, and municipalities.”
The five taxes will be replaced by a dual VAT system over a 10-year transition period, concluding in 2033. The reform will also shift the tax basis from origin-based to destination-based taxation, meaning taxes will be applied where goods and services are consumed rather than where they are produced.
The revenue distribution among the federal, state, and municipal levels will gradually adjust over a 50-year period to ensure a fair allocation of funds under the new system. This transition is expected to reduce tax evasion, lower business costs and foster economic growth.
Subira said Brazil’s vision is to simplify tax administration, automate tax returns and refund delays, and enhance compliance through a “government-as-a-platform” approach. This will reduce costs for the government and provide a better experience for citizens.
Data analytics have also been used extensively during the tax reform process to ensure the system remains simple and effective, with simulations run for the changes proposed.
New skills
The speakers agreed that tax modernisation is changing skills requirements.
Barry said: “Tax administrators have come in in the last few years who have had to understand technology and how it can be applied. They don’t have to be programmers, they don’t have to know all the bits and bytes, but they have to be able to understand the concepts of how you use computers to automate.”
“The same is now true of analytics and it’s happening at a faster pace,” he said. “You need people who are coming into tax administration, who are not necessarily mathematicians or programmers, or [able to] write code to build algorithms, but they need to understand the business concepts and how they apply to tax administration so that they can direct and understand the strategy behind it.”
Caruana agreed, saying: “I believe that with the technology being data-driven and compliance by design, we need people who focus more on the taxpayers’ experience.”
The use of automation and data analytics will create a shift from process-oriented roles to more knowledgeable, analytical professionals who are able to make decisions based on insights from data analysis, he said.
Replay the webinar – Transforming taxation: creating a better system for governments and citizens – here.
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