Business
Heavy Taxe: What Has AI Got To Do With Tax?
It is therefore incumbent on all of us to pay attention to the language of our tax masters, so that we do not get confused when it hits us.
By Sunny Ikhioya
A KEY focus of the Tinubu administration is to generate wealth by raising the tax to GDP ratio to not less than 18 percent, which means people will pay more taxes. It is therefore incumbent on all of us to pay attention to the language of our tax masters, so that we do not get confused when it hits us. That is why I have been following up on the series of tax conferences, organised by Blakey Ijezie, under the auspices of his chartered accounting firm, Okwudili Ijezie and Co.
The latest series was held on Thursday, August 15, 2024 at the Banquet hall of the Banex Mall, Lekki Lagos. It dwelt extensively on the informal sectors that account for over 80 percent of labour employment but, more importantly, how AI – artificial intelligence – could benefit our tax administration. Blakey characterised it as “taxation game-changing era, where data meets destiny”. The informal sector is seen as a potential goldmine for the government, if it could be brought into the tax net successfully.
For Dr Tunji Adeniyi, certain things have to be put in place for this to happen. Government is to facilitate access to registration, power, finance, production infrastructure, market infrastructure and information. To formalise the informal sectors, Adeniyi recommended the following steps: identify, locate, localise, provide service, incentivise and empower.
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For the government sub- sectors, they are advised to register and formalise business operations to make it easier to obtain access to finance, market and government support. In all of these, the government will benefit through enhanced tax revenue, enhanced economic growth, better economic planning, business enhancement, business resilience, safer environment and better welfare.
Blakey titled his keynote address, “The Future of Taxation – The Game Changer: Transforming the Informal Sector through Taxation”. According to him: “Today, we stand at the forefront of a revolution that will transform the fabric of taxation forever. A revolution that will harness the power of technology, innovation, and expertise to create a more inclusive and equitable tax system.” He sees AI-powered solutions as the key to streamline registration and licensing processes, provide real-time tax monitoring and automated audits, offer personalised tax advice and support, enable data-driven decision-making for tax authorities, facilitate collaboration between tax authorities, taxpayers, and technology providers”.
How can AI assist in formalisation? Simplified tax compliance and registration processes, automated bookkeeping and accounting systems, access to digital payment systems and e-invoicing, data analytics for business insights and decision-making, virtual assistance for tax and regulatory compliance. He gave his own strategies to bring in the informal sectors: “To entice informal sector executives to transition, we must offer incentives: Tax holidays or reduced tax rates, streamlined registration and licensing processes, access to training and capacity-building programmes, subsidies for technology adoption and digitalisation, recognition and certification programs for formalised businesses. AI will play a crucial role in boosting tax revenue: increase tax revenue by up to 20% through improved compliance and reduced evasion; can reduce administrative costs by up to 30%; can help identify and address tax gaps, leading to increased revenue and improved fairness.”
Examples from other jurisdictions demonstrate the potential: Kenya’s tax authority uses AI-powered systems to detect and prevent tax evasion, resulting in a 25% increase in revenue. India’s GST system uses AI-powered analytics to identify and address tax gaps, resulting in a 15% increase in revenue. Let me quote Blakey here: “By embracing this game-changing moment, we can increase revenue and fund public goods and services, promote economic growth and job creation, enhance financial inclusion and reduce poverty, improve governance and transparency. Let us seize this moment. Let us harness the power of technology and innovation to transform the informal sector. Let us create a tax system that is fair, efficient, and inclusive. ‘The future of tax is a game of innovation – and AI is the ultimate catalyst.’ Together, we can make a difference. Together, we can create a brighter future for all.”
He also touched on latest developments in tax technology, which include automation of tax processes and compliance, advanced data analytics for tax planning and risk assessment, artificial intelligence, AI, and machine learning, ML, applications, cloud-based tax software and digital platforms, blockchain technology for secure tax transactions. The opportunities of AI in taxation are as follows: enhanced accuracy and efficiency in tax calculations and compliance, improved tax planning and optimisation, increased transparency and fairness in tax assessments, automation of routine tax tasks, freeing up time for strategic advisory work, better identification and mitigation of tax risks.
There are also challenges of AI in taxation: Potential job displacement for some tax professionals, need for significant investment in technology and training, ensuring data privacy and security, addressing ethical concerns around AI decision-making, managing the impact of AI on the tax profession and society.
Other challenges to consider are: Infrastructure – Nigeria’s tax infrastructure may need upgrades to support AI adoption. Data privacy -ensuring the security and privacy of taxpayer data is crucial. Skills gap – tax professionals may need training to effectively utilize AI tools. Digital divide -AI may exacerbate existing disparities in access to technology and digital literacy.
“Overall, AI has the potential to transform taxation in Nigeria, but careful planning, implementation, and addressing of challenges are essential to maximize benefits,” he added.