Description

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Picture Courtesy: MONEY CONTROL

Context

The Central Board of Direct Taxes (CBDT) plans to ramp up efforts to curb tax evasion by leveraging advanced data analytics and artificial intelligence.

THE RISE OF AI IN INDIA'S TAX SYSTEM

What is the main idea behind the CBDT's new plan?

The Central Board of Direct Taxes (CBDT) plan to use Artificial Intelligence (AI) to collect fair taxes and create a fairer tax system by dealing with issues like black money and the "parallel economy" (money earned through illegal means or not declared to the government).

Central Board of Direct Taxes (CBDT)

It works under the Department of Revenue, which is part of the Ministry of Finance.

It was set up in 1964, under the Central Board of Revenue Act of 1963.

It manages and collects direct taxes like income tax and corporate tax, through the Income Tax Department.

How does AI help in managing taxes?

AI Application	How it Helps
Automated Scrutiny	AI quickly and automatically identifies mistakes and contradictions in financial documents, making assessments faster.
Risk Profiling	Advanced AI models create detailed risk profiles for taxpayers based on their financial behavior, transaction history, and connections. This helps target enforcement efforts.
Predictive Analysis	AI can forecast where tax evasion might happen, what new evasion methods might emerge, and which economic sectors are vulnerable.
Faceless Assessment & Appeals	AI promotes fair and objective decisions by reducing human involvement and discretion, which is a key part of the government's "Faceless Assessment" system.

What are the main advantages of using AI to fight tax evasion?

Enhanced Efficiency & Accuracy => AI processes cases much faster and reduces human errors; more precise and fair tax assessments.

Increased Revenue Collection => By better identifying and plugging tax leakages and non-compliance, AI directly helps the government collect more tax revenue.

Fairness & Transparency => Data-driven assessments minimize human bias and discretion, which leads to a more transparent and equitable tax system for everyone.

Stronger Deterrence => Increased likelihood of getting caught acts as a powerful deterrent against those who might consider evading taxes, encouraging people to follow tax laws voluntarily.

What are the main concerns with using AI in tax enforcement?

Data Privacy & Security => Protecting huge amounts of sensitive taxpayer information from being leaked, misused, or hacked.

Ethical Concerns & Algorithmic Bias => AI algorithms learn from past data. If that historical data has biases, the AI might unfairly target certain groups of people, leading to wrongful or discriminatory outcomes.

Technological Infrastructure & Human Capital => Building and maintaining advanced AI systems requires strong IT infrastructure and a highly skilled workforce.

Way Forward

Continuous Improvement => The AI models need constant refining and updating to keep up with new evasion methods.

Investment => Government must keep investing in strong technological infrastructure and training tax professionals to effectively use and interpret AI outputs.

Strong Privacy => Ensure data privacy rules (like Digital Personal Data Protection Act (DPDP Act)) are followed in "letter and spirit" to protect taxpayer information.

Learning from Others => The Canada Revenue Agency, the General Taxation Department of Vietnam, and the Swedish Tax Agency have invested in AI technologies to streamline their operational processes. India can learn from these countries.

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Source: MONEY CONTROL

PRACTICE QUESTION

Q. How can AI be effectively utilized to combat corruption and improve fiscal management in public administration? 150 words