AI-driven risk-based indicators should be applied fairly to all taxpayers without bias. Since taxation is interpretation-based, human oversight is crucial to mitigate the issue of excessive notices and reduce the compliance burden on taxpayers, stated C. Shikha, IAS, Commissioner of Commercial Taxes, Government of Karnataka, in an exclusive interaction with Krishna Mishra of Elets News Network (ENN). Edited Excerpts:
What is your vision for integrating AI & new technologies into commercial tax administration in Karnataka?
GST, a PAN-based nationwide indirect tax system, benefits from extensive database integration, facilitating robust data-driven investigation and tax administration. AI and new tools analyse taxpayer behaviour and sector-specific patterns, tracking growth and compliance nuances within states and across the nation. They predict GST collections, forecast system performance, and benchmark globally, enhancing fiscal predictability and policy efficacy.
Our vision for integrating AI and new technologies into the Commercial Taxes Administration in Karnataka is two-pronged:
1. Predictive Analytics for Compliance
- AI-powered data analytical tools will be instrumental for pattern and behaviour analysis, sectoral analysis, growth rate and behaviour analysis, state-wise and national analysis.
- Predictive analysis will help develop risk assessment models, global comparisons, and taxation system enhancements, refining existing policies.
2. Enhanced Taxpayer Services
- Implementing AI-driven chatbots will effectively handle routine taxpayer queries in real time.
- ML algorithms will aid in automated document processing, tax planning advice, identification of bogus taxpayers and fake suppliers, and detection of fraudulent establishments within the sector, leading to optimal taxpayer compliance.
How do you see technology being used to improve tax audit efficiency and identify potential tax evaders?
Technology-driven tax administration has been effectively implemented in GST administration through advanced data processing systems like GST Prime4 by NIC (originating from the Karnataka Commercial Tax Department) and BIFA (GAIN) by GSTN. These systems have significantly enhanced the detection of tax frauds nationwide. Since May 2023, a concerted effort by GST formations across the country has led to the identification of 29,273 bogus firms involved in suspected Input Tax Credit (ITC) evasion amounting to Rs. 44,015 crore, with 121 individuals arrested.
In Karnataka, the integration of technology in tax audits and adjudication has resulted in the recovery of Rs. 10,692 crore over the past three years. Additionally, technology-driven analytics during the 2023-24 State Elections contributed to the Commissioner of Commercial Taxes being awarded the Best Electoral Practices Award 2023 (in Election Management) by the Election Commission of India.
These experiences clearly demonstrate that technology is indispensable for effective and efficient tax administration.
What safeguards do you envision to ensure fairness and transparency in AI-driven tax assessments?
To ensure fairness and equity in tax assessments, AI-driven risk-based indicators must be applied uniformly to all taxpayers, without bias. Taxation involves interpretation, making human oversight crucial to prevent an overwhelming number of notices and to ease the compliance burden on taxpayers.
For transparency and accountability in AI-driven tax assessments, it is essential to integrate the context and complexity of business processes, accountancy, and taxation into the system. Additionally, incorporating explainable response systems in AI audits is vital.
Public accessibility to the AI algorithms used in these assessments can further ensure fairness. However, maintaining data privacy and conducting regular security audits are equally important for the transparent and effective execution of AI-based tax assessments.
What challenges do you anticipate in implementing emerging technologies for commercial tax purposes, and how can they be addressed? What skills and expertise do you believe are necessary to prepare your department for technology integration?
Creating technology-driven taxation systems in a government setup to match emerging technologies worldwide is a challenging endeavor. Leveraging the vast amounts of data generated under GST, along with data obtained through backend integration with different departmental database systems, is a monumental task.
Several challenges arise in this process, including cost and resource allocation, data privacy concerns, legal and regulatory mandates, and skill gaps. To address these challenges, expert support and the establishment of an in- house data mining and analytical system with necessary checks and balances are essential. Periodic security audits to prevent data breaches and the deployment of a team of officers with the requisite skill sets to monitor and execute tasks are also crucial measures.
The department has already initiated several steps to prepare for technology integration. These include:
- Regular training and capacity building of officers in data
analytics at specialised institutions. - Hiring technical and data analysts and utilising the services of data experts.
- Providing hands-on and in-house training on extracting digital evidence.
- Collaborating with other departments to increase operational efficiency.
Overall, AI and data analytics are not only instrumental in efficient tax management but also contribute to broader goals such as revenue collection, transparency, fairness, and economic growth.
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