AI in Taxation: Transforming the Landscape

In the rapidly evolving world of technology, artificial intelligence (AI) is making profound strides in various sectors, including taxation. Renowned AI pioneer and strategist, Mark Minevich, asserts that AI has the potential to significantly impact jobs, particularly in fields like bookkeeping and accounting. However, while the rise of AI may raise concerns about job displacement, there is a brighter side to this transformation.

AI’s rapid advancements: A game changer in taxation

AI has demonstrated remarkable capabilities in handling repetitive bookkeeping and accounting tasks efficiently, often outperforming humans in accuracy and speed. These advancements have triggered concerns about job security, but experts believe there is room for humans to thrive alongside AI in the workplace. The key lies in humans harnessing their innate abilities such as creativity, emotional intelligence, flexibility, and strategic thinking.

Understanding the different stages of AI

Before delving into AI’s transformation in taxation, it’s crucial to understand the categories or stages of AI. “Artificial General Intelligence” (AGI) represents the science fiction idea of AI, where machines can develop cognitive abilities similar to humans. While AGI is not fully realized, it may not be too distant a future prospect. In contrast, “Artificial Narrow Intelligence” (ANI) is goal-oriented AI, specializing in specific tasks. “Machine learning” is an AI type that adapts autonomously with minimal human intervention, while “Deep learning” is a subset of machine learning, inspired by artificial neural networks mimicking human brain learning processes.

AI’s role in transforming the tax function

In the recently unveiled “Delivering Transformation – Strategic Plan for 2023-2025,” the Commissioner for Tax and Customs emphasized that the future of tax administration is technology-driven, integrating advanced data analytics, business intelligence, and artificial intelligence. AI can greatly enhance the capabilities of tax authorities like the Malta Customs and Tax Authority (MCTA). It can improve fraud detection and risk analysis by analyzing vast datasets to uncover patterns indicating potential fraud. Additionally, it can aid in enforcing compliance by identifying habitual tax non-compliers.

Furthermore, the introduction of a mandatory cross-border and optional domestic e-invoicing reporting regime planned for 2028 will provide real-time data, further empowering tax authorities like MCTA in their fight against fraud and ensuring timely compliance.

Empowering taxpayers and practitioners

AI’s influence extends to taxpayers and tax practitioners who are eager to embrace evolving AI technology. While certain roles, such as bookkeeping and accounting, may be automated by AI, new opportunities are emerging. Retraining and upskilling redundant staff can redirect their expertise toward other tasks.

For high-level responsibilities like tax planning and advisory, AI would require machine learning involving expert guidance. Experts or panels of experts can gradually train AI systems to analyze complex tax cases and determine the correct tax treatment and implications. This hybrid approach combines AI’s computational power with human expertise to achieve optimal results. While basic bookkeeping and accounting roles may become redundant, the demand for expert tax practitioners is expected to soar.

Barriers to adoption

Despite the inevitable arrival of AI in taxation, several barriers to its adoption persist. Primary among these are the costs, both initial and ongoing, associated with implementing AI solutions. Evaluating the benefits and downsides of AI implementation is another challenge. Many organizations may be hesitant to experiment with new technologies due to the fear of the unknown.

The future of taxation with AI

AI’s impact on taxation is undeniable. While some job replacements are anticipated, the overall transformation of taxation through ANI holds promise. As Mark Minevich emphasized, humans must focus on developing their inherent qualities—creativity, emotional intelligence, flexibility, and strategic thinking—to complement AI rather than being fully replaced by it.

As we look ahead, the prospect of AGI arriving on the scene raises intriguing questions about the future. While it may fundamentally reshape the landscape, the blend of human and AI capabilities will continue to play a pivotal role in shaping the tax industry. The future of taxation beckons, promising a harmonious coexistence between humans and AI.