Will Artificial Intelligence Revolutionize the Taxation System?

By Andrean Rifaldo, an employee of the Directorate General of Taxes

A decade ago, precisely in 2014, the Directorate General of Taxes (DGT) launched DJP Online as a one-stop platform for annual tax reporting. This online automation revolution had a significant impact, enhancing efficiency and simplifying the tax administration system.

If you are one of the approximately 19 million taxpayers this year, you might have experienced the bitterness of answering a series of questions in the electronic tax form, only to face a failed submission notification due to system disruptions. Undoubtedly, our current tax administration system needs reform once again.

In 2020, a survey involving 69 countries conducted by the German Research Foundation ranked Indonesia as the 26th most complex tax administration system in the world. This complexity undeniably creates a burden, not only for taxpayers but also for the tax authorities.

However, tax responsibility doesn't have to remain a perpetually daunting and convoluted specter.

Simplifying Tax Compliance

The rise in popularity of Artificial Intelligence (AI) technology, particularly after OpenAI released the large language model AI ChatGPT in November 2022, presents an opportunity for the next big revolution in tax administration systems.

Within various economic sectors, AI has already demonstrated its hopeful capabilities. Conversation bots now handle over 20% of customer service at Den Norske Bank, the largest bank in Norway. While in the medical field, IBM has earlier developed Watson for Oncology as an AI to assist decision-making for patient care.

Even multinational technology companies such as Adobe and NVIDIA have collaborated to create a more advanced generation of AI models. Hence, why haven't we implemented similar technology to streamline tax administration?

The application of AI enables the development of AI-assisted tax reporting applications that can automatically assist taxpayers in filling out tax forms. If this were to happen, every taxpayer could now prepare their annual tax reports easily and quickly, with a minimum of errors.

AI doesn't just benefit the reporting system; it can also function as a personal assistant for taxpayers, helping them determine the appropriate tax services and facilities based on their individual needs and conditions.

With these opportunities, taxpayers will no longer need to physically visit tax offices or rely on third parties; AI technology brings convenience and efficiency to tax compliance.

Easing the Compliance Supervision

AI not only benefits the public but also holds the potential to become a significant breakthrough for the DGT. AI algorithms possess the capability to segregate and interpret vast amounts of financial data to enable the detection of tax evasion, which would be challenging to achieve manually.

In Greece and France, AI technology has been employed to compare property tax databases with satellite images of residential areas to identify unreported assets. Meanwhile, since 2019, India has been using AI to supervise income tax reporting and has plans to expand it to other types of taxes.

Furthermore, AI can evaluate past patterns to determine the risk level of each taxpayer. This creates a more effective compliance risk management system, allowing the DGT to allocate resources more efficiently to monitor taxpayers.

With the assistance of AI technology, tax compliance supervision becomes more effective, enabling the DGT to identify potential tax evasion with greater accuracy and, in turn, enhancing overall tax revenue collection.

Weighing the Challenges

The immense potential of AI in the taxation system is undeniable, but it also comes with serious challenges that must be carefully considered. One evident challenge is ensuring the availability of funds to realize the technology.

For instance, OpenAI had to invest $4.6 million to develop ChatGPT, while IBM's investment in creating Watson was even more significant, reaching $1.8 billion. Developing an AI system capable of assisting over 67 million taxpayers and easing the workload of more than 45 thousand DGT employees undoubtedly requires a substantial budget.

Another significant challenge is finding suitable project bids. Both OpenAI’s ChatGPT and IBM’s Watson were developed by professional scientists from various research institutions and universities across the United States. Meanwhile, In Indonesia, AI is still a relatively new field, noting that we only launched the National AI Strategy in August 2020.

However, the most significant risk lies in privacy and data security concerns. The taxation system surely involves sensitive data protected by laws, and AI technology, just like any other electronic system, is not exempt from the risk of data breaches. For example, in March, ChatGPT experienced a hacking incident that resulted in the leakage of data from over 100,000 users.

Without a doubt, artificial intelligence is a relatively young technology that requires further understanding. There are many risks that must be considered before integrating AI into the tax system. However, if successful, it could lead to a significant breakthrough that revolutionizes the tax system, making it more efficient for both taxpayers and the DGT.

It is undeniable that we now stand on the threshold of a more advanced world. Similar to other aspects of life, the taxation system must also determine the direction it will take. With careful consideration and wise steps, the implementation of AI in taxation can eventually have significant positive impacts.

*)This article represents the author's personal views and does not represent the stance of the institution.