Artificial Intelligence helps in Detecting GST Evasion; Says GST Official

The Use of Artificial Intelligence (AI) to identify payment discrepancies has become a topic of discussion as industries like online gaming, insurance, and airlines, among others, deal with an inflow of complaints regarding Goods and Services Tax (GST) evasion.

According to a senior ministry official, AI was in charge of finding GST mismatches totaling Rs. 30,000 crore in the previous financial year alone. Of that amount, the finance ministry has already collected Rs. 15,000 crore.

It is estimated that 33,000 GST notices have been delivered to businesses by central tax inspectors thus far for irregularities in their 2017-18 and 2018-19 GST return filings.

Concerns about heightened surveillance of firms have been raised by the recent increase in the number of notices. Indeed, a different high-ranking government official attested that artificial intelligence is mainly to blame for the rise in tax evasion detection, which has resulted in an increased volume of notices.

In 2022-2023 and the first seven months of 2023-2024, the Centre has issued 71 show-cause notices to online gaming companies alone. However, up to 15 insurance companies, including Bajaj Allianz, Aditya Birla Sun Life Insurance, and HDFC Life Insurance, are allegedly responsible for GST evasions totalling Rs. 2,350 crores thus far. Tax authorities also monitor other industries like shipping and aviation.

It is not possible for this new technology to fully replace an officer’s abilities, experts say, especially in light of the overwhelming number of show cause notices that the government has issued over GST evasions.

“In particular, AI should not take the role of human intelligence in tax administration.” a tax expert told.

Tax expert further added, “Even though artificial intelligence (AI) is a fantastic tool for identifying trends, the government is currently employing AI carelessly to notify assessees. Legally speaking, it is also problematic to send a tax notice without using one’s brain since that is grounds for notice to be suppressed.”

However, four tax department officials from the finance ministry, speaking on the condition of anonymity, claim that AI is merely used to find discrepancies in GST payments; the administration then decides whether to issue a demand notice in that specific instance.

Industry experts, however, assert that little to no human mind is involved in the majority of the notices in the GST case, which are the consequence of discrepancies detected by AI alone.

However recognises that using AI to quickly review, correlate, and identify gaps among different data points is helpful, according to another industry expert. However, the government must ask taxpayers about the causes for the mismatches before relying only on them.

To make the best use of artificial intelligence (AI) and future technologies, tax authorities should consult with taxpayers on important factual and legal issues prior to sending notices.

Giving notice before to a show cause is one method to guarantee improved communication between the government and industry at a time when artificial intelligence is becoming more and more important.

It is permissible by law for departments to give an intimation notice prior to a show-cause order. The GST officials don’t use that very often. At the very least for higher tax demands, there should be a rise in the usage of AI-related intimation notices issued ahead of show cause notices. That will significantly reduce conflict and guarantee that the taxpayer is not caught off guard.

According to the GST law, taxpayers who discover inconsistencies in their returns will receive an intimation notice informing them of the mismatch and requesting an explanation within 30 days.

“Tax administration has reached a sophisticated stage, and it will continue to do so. Standardised legal interpretation has been achieved, and the case law has begun to fall into place. Data analytics has decreased the number of areas businesses can hide in,” One of the officials mentioned above stated.

Businesses must update their processes to guarantee accurate tax payments because the use of AI in tax administration will continue to increase.