In the UK, advanced technology may soon be employed to combat a significant issue. Members of Parliament were informed that HMRC officials are exploring the potential of artificial intelligence to address the tax gap exploited by fraudulent activities.
Tax avoidance involves manipulating regulations to gain tax benefits unlawfully. Estimates suggest that between 2023 and 2024, the UK Government suffered a loss of £0.7 billion due to tax avoidance practices.
According to HMRC, tax avoidance usually entails contrived transactions that serve no real purpose other than tax advantages, operating within the legal framework but not the intended spirit of the law. In contrast, tax evasion involves a deliberate effort to avoid paying due taxes, which is considered illegal and subject to severe penalties, including criminal prosecution.
Recent reports indicate that the UK government’s losses from tax evasion amounted to £5.5 billion in 2022-23, projected to rise to around £6.5 billion in 2023-24. During a recent exchange with Exchequer Secretary Dan Tomlinson, Labour MP Shaun Davies inquired about the potential of artificial intelligence and digital technologies in reducing tax evasion and avoidance.
HMRC’s strategy includes leveraging AI to enhance compliance efforts, identify cases for investigation, and swiftly address emerging tax system issues. The agency aims to streamline operations, enhance service efficiency, and optimize resource allocation by utilizing AI technologies. While AI plays a crucial role in streamlining processes, human oversight remains essential to ensure transparency, ethical standards, and customer-focused outcomes in decision-making processes.