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AI gears up for VAT

In what ways can generative and machine learning AI help VAT & GST professionals?

Since the November 2023 launch of v3.5 ChatGPT, the global indirect tax world has been speculating on how generative Artificial Intelligence (AI) will help or hinder it.  But much of the revolution is already underway with earlier incarnations of AI – including machine learning.

VAT’s big data pools fuels AI’s capabilities and accuracy

In-house and external tax advisors are a long way behind the ‘enemy’. Tax authorities adopting AI has been underway for several years. They see AI helping to close the VAT Gap where other measures have struggled. Below are some examples of how it can help Value Added Tax or Goods & Services Tax teams. Tax authorities are proving how VAT’s abundance of ‘big data’ in the form of millions and billions of taxable transactions, provides the large volumes of data for better model training purposes. The data would help make more accurate tax predictions, and big data analytics ropes in AI tools for better data analysis. AI has breathed new life into tax data, opening up vast possibilities for the prevention of fraud or reduction in costly on-site audits.

And you can see how we at VATCalc are already using it to generate AI VAT advice and item classification or tax codes to get the right taxing rates, country, exemptions and return reporting.

Automated VAT invoice Collection and Processing:

AI-powered tools can automate the collection and processing of vast amounts of indirect tax data. They can seamlessly integrate with a company’s accounting systems, ERP software, tax engine, invoicing platform and other transaction records. This not only reduces manual data entry errors but also frees up VAT professionals from the tedious task of data collection, allowing them to focus on higher-value strategic activities.

Real-time national VAT transaction compliance Monitoring:

AI enables real-time monitoring of VAT transactions for potential compliance issues. These applications can detect anomalies and flag them for review, reducing the risk of costly errors or omissions. Examples can include: intra-community transactions; exemptions; country of taxation; deductibility; and rates. With 175 countries with VAT, generative AI offers the opportunity to stay full up-to-date with the changing requirements in a highly efficient and targeted manner. For example, taxpayers operating in multiple jurisdictions often contend with significant differences in VAT return obligations, deadlines and reporting requirements. Chatbots can be programmed to hold all this information, and answer queries quickly and accurately.

Predictive Analytics:

AI-driven predictive analytics help VAT professionals forecast their indirect tax liabilities accurately. By analysing historical VAT returns and considering various scenarios, AI can provide valuable insights into potential tax implications, allowing companies to make informed financial decisions and optimize their tax strategies.

AP invoice submissions and coding

Whilst the best and most experienced accounting clerks may be able to review and input 10’s of thousands of accounts payables, this level of input can be well exceeded with AI-based solution has the capability to process between five and six million incoming invoices annually,  This includes more accurate tax code identification and matching to ensure better recovery and less likelihood of audits.

Customised VAT / GST  Planning:

AI can analyze a company’s transactional data to identify opportunities for VAT optimization. By considering factors like industry-specific exemptions e.g. medicines and transport and deductions, AI can provide tailored VAT planning recommendations that help businesses minimize their indirect tax liabilities. For example, picking alternative supply chains to reduce the possibility of unrecoverable VAT or slow credit refunds

Enhanced VAT Audit Defence:

In the event of an audit, AI can be a valuable tool for tax professionals. It can quickly retrieve and analyse relevant transaction data, supporting the company’s position and ensuring a smoother audit process. For example, retrieve public VAT guidance and tax rulings in support of a VAT position taken.

Cost Savings and leverage talent

Ultimately, AI can significantly reduce the cost of indirect tax compliance and audits. By automating repetitive tasks, improving accuracy, and optimizing tax strategies, businesses can save both time and money.  But it’s not just about reducing headcount: AI tools can liberate VAT professional for more value-added work, including helping the business plan further into the future to minimise VAT losses.

In conclusion, AI is a game-changer for indirect tax work. It not only simplifies compliance but also empowers businesses to make data-driven decisions that can lead to substantial cost savings and improved financial performance. As technology continues to advance, the role of AI in tax management will only become more critical, allowing companies to stay competitive in a complex and ever-changing regulatory landscape.


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