Tax & AI: The future of tax compliance

By Dennis

Artificial intelligence (AI) is rapidly reshaping how we live and work. In tax, AI has the potential to fundamentally change compliance — making it more efficient, more accurate, and more transparent.

Below are some of the most promising applications of AI in tax:

Data processing and analytics. AI can quickly process and analyse large volumes of tax data, surfacing patterns, anomalies and trends that human reviewers might miss. This helps tax authorities identify potential evasion and fraud.

Compliance automation. AI can take over many of the routine tasks tied to tax compliance — data entry, computation, filing — freeing professionals to focus on higher-value work such as advisory and planning.

Virtual assistants. AI-driven virtual assistants can help taxpayers understand their obligations and file returns correctly, lowering the time and friction of staying compliant.

Tax planning. AI can help taxpayers identify and implement tax-saving strategies, reducing their overall tax burden.

The use of AI in tax is still at an early stage, but its potential impact on the way we administer and comply with tax is significant. As the technology matures, we expect to see a growing number of innovative applications over the coming years.

Concrete examples

• United States — IRS is using AI to identify potential tax evasion. For instance, the IRS is analysing data from social media and other sources to detect taxpayers who may reside outside the United States while still filing U.S. returns.
• Australia — ATO is using AI to automate return processing, including matching taxpayer data against third-party sources such as banks and employers.
• United Kingdom — HMRC is using AI to deliver personalised tax advice, analysing taxpayer data to identify potential tax-saving opportunities.

These are only a few examples of how AI is being applied in tax today. As the technology continues to develop, we expect many more innovative applications in the years ahead.

Benefits of using AI in tax

• Greater efficiency. AI can automate many compliance-related tasks, allowing tax professionals to focus on higher-value work.
• Higher accuracy. AI can identify and correct errors in tax returns, helping ensure taxpayers pay the right amount.
• Greater transparency. AI can improve transparency across tax processes, helping build trust between taxpayers and tax authorities.
• Lower cost. AI can reduce the cost of compliance — a benefit for both taxpayers and authorities.

Challenges

• Data privacy. AI-driven systems require access to large volumes of data to function effectively, raising legitimate concerns around privacy and security.
• Bias. AI systems may embed bias, which can lead to unfair outcomes for taxpayers.
• Complexity. AI systems can be complex and difficult to understand, making it hard to ensure they are used correctly.

Conclusion

AI has the potential to fundamentally reshape tax compliance — making it more efficient, more accurate, and more transparent. Significant challenges remain before AI can be adopted at scale in the tax domain. As the technology continues to develop, we expect these challenges to be addressed and AI to play an increasingly central role in the future of tax compliance.