AI-powered tax governance in India and its challenges, Pg12

Key Highlights:

• India's tax-GDP ratio was the lowest (16.36%) among developing economies during 2001-22, with annual tax revenue losses of 4.3% due to evasion.
• Project Insight (PI), launched in 2017 and operational by 2019, uses AI to improve tax administration and compliance.
• The Income Tax Transaction Analysis Centre (INTRAC), PI's analytical engine, creates 360-degree financial profiles using data from various sources.
• Since 2020-21, over one crore revised tax returns were filed after receiving nudges, yielding an additional ₹11,000 crore in taxes.

Detailed Insights:

• Project Insight aims to encourage voluntary tax compliance, reduce tax evasion, and make tax enforcement fairer through AI and data analytics.
• The Compliance Management Centralized Processing Centre uses the NUDGE strategy to encourage taxpayers to correct inaccurate tax returns via SMS or email.
• AI helps tax agencies assess risk, prioritize evasion cases, automate tasks, and improve taxpayer services through chatbots and fraud prevention.
• A NUDGE campaign covering 6.25 lakh taxpayers resulted in corrections of false income-tax deduction claims worth ₹963 crore and additional taxes of ₹410 crore.
• The Income Tax Department (ITD) discovered ₹70,000 crore in suppressed sales turnover by restaurants since 2019-20 using big data analysis and AI tools.
• Algorithmic tax governance raises concerns about data quality, algorithmic bias, explainability, data privacy, and the absence of an AI ombudsperson.
• Implementing strong AI governance guardrails is crucial to prevent the system from becoming a surveillance tool that undermines accountability and fairness.

Key Concepts Involved:

• Tax-GDP Ratio: The ratio of a nation's tax revenue relative to its Gross Domestic Product (GDP).
• Tax Evasion: Illegal non-payment or underpayment of tax.
• Algorithmic Bias: Systematic and repeatable errors in a computer system that create unfair outcomes.
• AI Ombudsperson: An official appointed to investigate and address complaints related to Artificial Intelligence systems.