The Relevance of Utilising Artificial Intelligence in Tax Administration to Combat Tax Controversies in Malaysia

By Nurul Irdina Sazali

The United States’ fourth president, James Madison once quoted “the power of taxing people and their property is essential to the very existence of government” to indicate the importance of tax in building a successful and balanced country where the citizens do not have to worry about their tomorrows, especially when talking about basic needs. Tax, a simple word which carries a heavy meaning, can be defined as the sum of money that the citizens have to pay to the government in order for it to be returned to the public services to facilitate them in daily life. In other words, tax is essential to collect the revenue for the government to spend on the citizens and the betterment of the country itself. In Malaysia, among the taxes that are being collected are personal income tax, company tax as well as sales and services tax (SST). However, Malaysia, as like any other country in the world, is also involved in tax controversies such as tax evasion and tax fraud. These issues that have been long rooted in our tax system have been giving negative impacts to the country such as the reduction of the country’s revenue. This has caused the government to not be able to cater the citizens’ needs as they are supposed to do. Therefore, some measures must be taken to alleviate the mentioned issues.

In the current world, Artificial Intelligence (AI) is something that is commonly talked about and used to ease daily life activities for instance, the usage of Artificial Intelligence in smart home devices. Artificial Intelligence can be understood as a software that functions in the same way of human intelligence such as in reading and making judgements. Artificial Intelligence can analyse lots of things that are more than humans’ capabilities such as processing complex and big data as well as serving data that are extremely accurate without human intervention. With all the abilities of Artificial Intelligence along with the tax controversies mentioned in the earlier discussion, it is very much relevant to implement the utilisation of Artificial Intelligence in tax administration in Malaysia as Artificial Intelligence can help to detect tax evasion with its ability to process complex data and present accurate results and prompt the improvement of tax compliance among taxpayers.

The first relevance of utilising Artificial Intelligence in tax administration is that Artificial Intelligence can detect tax evasion with its ability to process complex data and present accurate results. Tax evasion can be defined as deliberate criminal activity or actions that directly violate tax laws in order to avoid paying taxes. Artificial Intelligence can detect tax evasion by arranging tax returns and find the people who avoided paying the tax in the first place. As in fact, tax returns can only be made when tax invoices are being issued. If no tax returns are being made, it shows that one did not issue his tax invoices proving that he in fact did not pay his tax. All these detections will be done using the Artificial Intelligence machine when it processes the data given and the results produced are extremely accurate. This way, those who avoided paying tax can easily be caught and accused for tax evasion. When more people are being caught for this crime, it is anticipated that the cases of it will reduce in a short period of time. Another result that can be expected is that more taxpayers coming from companies is that the companies will be more transparent in tax issuance to avoid being convicted with tax evasion that will lead them to bankruptcy. Hence, Artificial Intelligence is realistically relevant to be implemented in the effort to reduce the cases of tax evasion that will lead to a more transparent tax system that will benefit the country in terms of the country’s revenue to cater the citizens.

Another relevance of utilising Artificial Intelligence in tax administration is that Artificial Intelligence can prompt the improvement of tax compliance among taxpayers. Tax compliance can be defined as the choice of taxpayers to abide by tax laws and regulations by making accurate and timely tax payments. AI can prompt this tax compliance based on a few measures. Firstly, AI can process big and complex data properly and efficiently. This includes detecting abnormalities in data that may not be detected by humans. Such abnormalities can be data fraud or abnormal trends that may be regarded as criminal activities. In normal situations where Artificial Intelligence is not used, humans may overlook these abnormalities as human nature itself is not compatible to work with such big data that require a very high level of expertise. In order to make up for the incompatibility, this Artificial Intelligence is suitable to be used for that very reason. Secondly, Artificial Intelligence can also do automation in processing data. Artificial Intelligence is compatible for routine tasks such as data entry which can fasten the work of data processing. Artificial Intelligence automation provides a system that can reduce errors in data reading and serving, hence the accuracy of data served. This system is regarded to be a very efficient system to prompt tax compliance, and again to avoid tax fraud or evasion due to data accuracy.

Discussing the same topic, Artificial Intelligence can also work in risk assessment in the tax system. Artificial Intelligence can detect potential risks that may happen depending on data history that can be accessed. Any suspicious activities detected then can be notified to the particular authorities to take necessary actions in order to combat illegal activities hence increasing tax compliance among taxpayers. On the other hand, Artificial Intelligence can also provide AI chatbot as an online assistant to assist the taxpayers if there should be any queries. When the taxpayers are well assisted, it will be easier for them to perform their responsibility as they could easily find solutions to their problems. It should be taken into account too that the people nowadays prefer to use virtual methods in everyday life things and paying tax is also one of them. This method will ease them as it can be accessed at any time and any day. Therefore, the issues in paying tax among taxpayers will be alleviated and tax compliance will increase due to the ease of the system to serve them.

To wrap things up, by utilising Artificial Intelligence in tax administration, the country will be able to have a more efficient tax system as the tax controversies such as tax evasion and tax fraud are being fought against. This Artificial Intelligence can help to detect tax evasion using its complex and beyond human capabilities system. If more cases of tax evasion can be proven using the Artificial Intelligence system, people would be more aware and avoid committing the crime in order to not bear the legal consequences. Other than that, Artificial Intelligence also helps to prompt the improvement of tax compliance among the taxpayers by having a proper data processing system, system of automation, risk assessment as well as AI chatbot. These will increase tax compliance by detection of anomalies in data as well as the assistance given to the taxpayers in solving their issues related to tax. All in all, Artificial Intelligence is relevant to be utilised in tax administration in Malaysia to ensure that the country and the citizens can enjoy the benefit of the transparent tax system in the long run.

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