Benefits And Detriments Of Using Ai In The Tax Profession Assignment

Introduction

The growth of artificial intelligence (hereafter ‘AI’) is having an enormous impact on every industry and its commercial activities. Similarly, the regime of tax has also been impacted by AI and its underlying features. However, it has both positive and negative effects on taxation and the tax profession. For example, the Australian Taxation Office (hereafter ‘ATO’) used AI to identify more than $530 million of unpaid taxes and prevented $2.5 billion of fraudulent deduction claims[]. Considering the above background, the purpose of this research essay is to explore and analyze the various advantages and downsides of using AI in the tax profession. In this process, the essay provides a detailed understanding of whether the benefits of using AI in taxation outweigh the detrimental impacts. Lastly, the essay concludes that since there are several benefits of using AI, the detriments should be prevented using laws and policies so that AI can be fruitful for managing the various aspects of taxation.

Benefits of AI in the Tax Profession

The scope of AI is wide enough to be used in the taxation regime for better operation and efficiency. In the context of Australian taxation, the ATO deals with various taxation issues including decision-making and exercising discretion. A study in relation to taxation and AI revealed that due to the extremely complex nature of the tax regime and the continuous shift in taxation laws, the government needs a constructive framework and machine learning techniques to manage tax operations and related implications. Another report concluded that various frameworks of AI can be beneficial for the administration of taxation especially when it comes to the implementation of policies, monitoring, and reviewing. Therefore, if tax professionals have AI tools at their disposal, their work can be far more efficient and accurate. The ATO often struggles to recognize tax evasion and illegal tax claims since wealthy people hire capable tax consultants and lawyers to get rid of paying large amounts of taxes. This is ATO has been using AI to identify suspicious activities in the realm of complicated tax evasion strategies. News reports from last year show that the ATO has created ANGIE (Automated Network & Grouping Identification Engine) to monitor the real-time transactions of corporate entities. This engine helps ATO to identify patterns and strategies used by wealthy people to misuse tax evasion mechanisms. Human analysts are far less capable than AI to identify such incidents since machines do not get tired as stated by the deputy commissioner of ATO, Marek Rucinski[]. The AI regime has a profound impact on tax professionals since AI tools make efficient and accurate calculations without the chance of any error. This not only saves time but also reduces the effort to identify the issues[]. This is because AI tools will make it easier for tax professionals to identify income sources and identify the areas where tax deductions can be claimed automatically without having to go through the laws and policies. Therefore, AI and its features are beneficial for authorities like ATO in preventing tax evasion. A recent news report published in the Australian Financial Review states that AI tools have been successful in providing accurate property tax valuation and land tax assessments. The report also states that AI tools have the potential to reduce the number of tax disputes through automation[]. Therefore, it can be analyzed that AI is accurate and its automation features reduce human element and hence errors which leads to accurate financial calculations and of course tax valuations.

Detriments of AI in Taxation

Since AI offers automated services without involving human interference, it is easier to manipulate the system and take advantage of the loopholes. A recent report shows that a marketing company named Metigy used AI to forge bank statements and fabricate revenue streams to deceive investors. The company failed to lodge tax returns and filed inaccurate bank statements using automated services and transferred evaded tax amounts to buy off properties[]. Therefore, such incidents show how AI can be misused to create false and misleading situations affecting the integrity of the taxation and financial authorities. Similarly, another news report showed how tech companies did offshore transactions without taxation implications using AI and converted losses into profits[]. The vast and wide scope of AI has made it difficult for the ATO as well to catch tax offenses since even the offenders are equipped with capable AI tools. Another news report published in the Australian Financial Review shows that the ATO missed the opportunity to prevent a $4.6 billion tax crime. The fraud was caused by individuals using the MyGov account to claim GST refunds in relation to payments that were made. It was possible due to automated tools showing valid transactions[ Neil Chenoweth, ‘How the ATO missed a $4.6b crime wave’, (14 August 2023) The Australian Financial Review, AFNR000020230816ej8e0003b. ]. The use of AI has also been termed uncertain and expensive by KPMG and Microsoft recently[ James Thomson, ‘KPMG and Microsoft’s AI deal is an $18b taste of what’s to come’, (12 July 2023) The Australian Financial Review, https://www.afr.com/chanticleer/kpmg-and-microsoft-s-ai-deal-is-a-taste-of-what-s-to-come-20230712-p5dnn0 ]. ATO has also reported worrying about AI tools generating inaccurate information[ Tom Ravlic, ‘ATO concerned about AI tools generating unreliable information’, (11 April 2023) The Mandarin, https://www.themandarin.com.au/217184-ato-concerned-about-ai-tools-generating-unreliable-information/ ].

Do Benefits Outweigh the Detriments?

The question of whether AI has more advantages or disadvantages has a lot of uncertainties. Considering the above evidence, it can be said that AI as a tool has the potential to support any system. It can support the government to reduce tax evasion and it can also support tax offenders to find new ways to misrepresent financials and taxes. Therefore, it comes down to how well the government can regulate the use of AI. As far as AI is concerned for tax professionals, it can be said that AI has immense possibilities to reduce human effort and consequently inaccurate results, calculations, and human errors. Most recent studies support the use of AI for the administration of tax regimes since automation is the future[ Ben Neilson, ‘Artificial intelligence authoring financial recommendations: comparative Australian evidence’, (2023) Journal of Financial Regulation 1, 9. ]. A similar stance has been taken by another recent study which states that tax compliance models can be pre-defined and automated to reduce human interference[ Agustine Dwianika, Irma Paramita Sofia and Ika Retnaningtyas, ‘Tax Compliance: Development of Artificial Intelligence on Tax Issues’, (2023) 8(12) KnE Social Sciences 728, 733. ]. Therefore, to conclude, it can be said that the advantages can outweigh the downsides with careful application and implementation of AI use policies. If the government can successfully regulate the regime using AI, there will be fewer chances of misuse and detriments.

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