Malta collects €650m taxes via its predictive AI fiscal administration
Malta has confirmed that in 2024 it collected an impressive €650 million more in tax compared to the previous year. Most of this increase was directly attributed to the use of artificial intelligence (AI) tools designed to combat VAT and tax evasion. A finance minister confirmed Minister how this technological leap is part of a broader national strategy to close tax gaps and ensure fairness.
The AI system is capable of proactively identifying businesses and individuals who may attempt to evade VAT. This predictive approach not only boosts enforcement but also accelerates legitimate processes. For tax payers, the benefit can be seen in VAT refunds, which used to take three to four months, are now being processed within the same month.
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VAT authorities adopting Artificial Intelligence technologies
Malta’s approach reflects a growing global trend where tax authorities are leveraging AI and data analytics to combat the EU VAT Gap — a form of tax evasion that costs EU countries alone over €90 billion annually, according to European Commission estimates.
AI-powered systems can analyse large volumes of transaction data, invoices, and tax filings to spot suspicious patterns that would take human auditors months, if not years, to detect. These systems use machine learning models trained on historical fraud cases, enabling them to spot anomalies such as missing trader fraud (carousel fraud), fictitious invoices, and artificially inflated VAT refund claims.
Examples of tax authorities using Artificial Intelligence
- UK HMRC is building Large Language Model to help identify VAT evasion
- Greece is establishing a specialist AI unit using MyDATA VAT transactions for detecting fraud.
- Austria AI unit has been targeting missing trader VAT fraud with impressive results.
- Romania claims to have boosted VAT receipts by up to 1% in the last 12 months via AI and robot adoption.
- Italy, possibly the most fervent users of AI for detecting tax evasion, last year identified over 1 million high-risk cases with AI-driven data analysis. This includes a latest algorithm that cross references financial data to identify taxpayers at risk of not paying. Its VeRa algorithm compares tax filings, earnings, property records, bank accounts and electronic payments looking for discrepancies. High-risk taxpayers then receive a letter asking them to explain the differences. The more data VeRa processes, the smarter it becomes.
- Vietnam has announced that it will be adopting Artificial Intelligence before the end of 2023 to help identify tax fraud. This includes, for example, to flag firms that issue invoices too often, for unusually high amounts or in other ways indicating attempts to slash taxable revenue.
- Australia claims to have identified over $530 million in unpaid tax bills and prevent $2.5 billion in fraudulent claims using AI models, including deep learning and natural language models.In addition to detecting underpayments, the ATO’s AI systems have also been utilized to combat GST fraud. This includes the ATO has employing gradient-boosting machine learning models, which have been successful in identifying fraudulent behavior patterns.
- US, the Inland Revenue Service has drawn-up a second-half 2023 plan to adopt Artificial Intelligence technologies and algorithms. It will be adding AI tools to identify taxpayers who make $1 million and up, and have more than $250,000 The IRS’ initial focus will be using AI analysis to replace existing paper-based reporting and returns. Its existing Modernized e-File (MeF) system already accepts 76% of paper tax returns processed without human intervention. This next phase will be about experimenting and adopting AI models to extract valuable information from this exercise.
- India from May 2023 is using AI to identify fraudulent applications for input tax credits via false GST registrations. The central government’s Business Intelligence and Fraud Analyst (BIFA) site, the e-way portal, and the Rajasthan government’s Business Intelligence Unit (BIU) would collaborate to detect GST numbers that appear to be false.
- India‘s Income Tax Department is using AI to identify falsified income tax deductions. It uses algorithms designed to identify unusual ratio’s between income and political or charitable donations.
- Malta, UK, Canada, the Netherlands and Ireland use an AI system that daily compares wealth based on public sources with that declared in their VAT and tax returns. It also sources public registers, bank accounts (in limited circumstances) to identify undeclared assets and spending.
- Sweden deploys AI to identify and highlight tax risk issues when businesses apply for new incorporations. Since 2021, it has been able to review for tax avoidance flags in registration applications. This has also helped speed-up the application process by reducing the manual time required in reviewing documentation.
- Poland’s System Teleinformatyczny Izby Rozliczeniowej (STIR), analysis data provided daily by banks and credit unions report account data and clearinghouse data on a daily basis for all transactions carried out by taxpayers. It enables the National Revenue Administration (NRA) to detect potential carousel frauds in near-real-time, versus the two months that might have been needed previously.
- France uses AI satellite image scanning to identify signs conspicuous consumption. This can include multiple cars or swimming pools appearing at residents of person under tax investigation. This is particularly useful for local direct taxes (real estate tax).
- Singapore’s Inland Revenue Authority has developed an in-house network visualiser with graph database as an underlying technology to address its auditors’ needs. This tool provides auditors with customised functionalities to analyse intricate, multi-layered relationships between entities during audits/investigations. It can also uncover relationships more than 10 connections deep in a real-time manner.
- Xenon is a tool used by six European countries to investigate tax evasion based on internet searches and surveillance. It was originally developed by The Netherlands
- Brazil has been using AI behavioural insights (called ‘High Performance Inspection’ (FAPE)) to analyse the outcomes of varying standard tax letter requests to taxpayers. It has been evaluating the response of the taxpayer based on their particular background and circumstance to determine the optimum tax communications tone and lever of affirmation. From this, the authorities are able to determine the best approach to take with future taxpayer queries or audits.
- Aside from using AI to detect potential tax fraud or errors, most authorities are now using AI to assist the efficiency of their own compliance and administrative activities. This can include recruitment processes. Countries such as Canada and Singapore are leading the way on this.
- As common on must large private sites, the tax authorities are increasingly using AI-driven virtual assistants. The list of countries includes: Spain, Peru, Australia, Canada, the United Kingdom, Ireland, Finland, Sweden, Latvia, Estonia, the Republic of China, Russia, Singapore, Guatemala, Chile, Mexico, Costa Rica, Colombia and Brazil.
