The Importance Of Digitalization In Building AI-Based Tax Database

JAKARTA - Tax reform in Indonesia faces major challenges in line with the dynamics of the global economy and rapid technological transformation.

One of the efforts to increase the efficiency and effectiveness of tax systems is through digitization and development of tax databases based on artificial intelligence (AI).

In the midst of the rapid development of the digital economy, the need to integrate technology in tax systems is very urgent.

Digitization can increase transparency, accountability, and tax compliance, while implementing AI allows better data management and more accurate decision-making.

Indonesia has great potential in the taxation sector, but still faces a number of challenges that hinder the optimization of tax revenues.

Indonesia's tax ratio to Gross Domestic Product (GDP) is still low compared to other developing countries.

According to World Bank data, Indonesia's tax ratio in 2022 is only around 10.8 percent, while OECD countries have a tax ratio of around 34 percent.

The low tax ratio reflects that there are many tax potentials that have not been utilized optimally, especially in the informal sector.

Another challenge is the Indonesian informal sector which covers about 60 percent of the workforce, most of which are not registered in the formal tax system. This makes many potential tax revenues not recorded, thus hampering the expansion of the country's tax base.

On the other hand, transparency and tax compliance are also considered low. Even though the government has adopted various tax policies, the level of tax compliance in Indonesia is still relatively low.

According to the survey results from the Indonesian Survey Institute (LSI), about 40 percent of Indonesians consider taxes a burden that does not provide direct benefits. In addition, the problem of tax evasion and leakage is still a big challenge.

Tax data management in Indonesia still depends on a manual system that requires a lot of time and resources.

Conventional data verification and analysis processes often cause inaccuracies and inaccuracies of information.

Therefore, digitization is very important as a step towards efficiency.

Digitalization of the tax system offers many benefits, including increasing tax compliance.

The use of technology in taxation systems allows for e-filing (electronic tax reporting) and e-payment (online tax payments). This makes it easier for taxpayers to report and pay their tax obligations on time.

According to data from the Directorate General of Taxes (DJP) of Indonesia, the use of e-filing in Indonesia continues to increase.

In 2021, about 75 percent of taxpayers have used e-filing, a significant advance compared to the previous few years.

Digitization also reduces administrative costs related to tax data processing. The use of the system automatically allows faster processing and minimizes human error.

For example, the use of e-facturing for tax invoices helps reduce the potential for invoice forgery and facilitate transaction verification.

In terms of transparency and accountability, technology can increase transparency in the management of tax revenues and expenses. Every tax transaction recorded in digital systems can be easily monitored and supervised by the authorities.

This also allows the public to monitor how taxes are used, thereby increasing public confidence in the tax system.

The digital system allows the government to provide better and faster services to taxpayers, such as providing information related to tax obligations, payment status, and assistance related to tax procedures online. This can improve taxpayer compliance and improve relations between the government and the community.

The application of artificial intelligence (AI) in tax data management provides enormous potential to improve the quality of analysis and decision making.

Some of the main benefits of AI in tax management include faster and more accurate data analysis.

AI can process large amounts of tax data in a short time. With the ability to analyze transaction patterns, AI can help tax authorities identify tax evasion potentials and match data between taxpayers with third-party data (such as banking data, business transactions, etc.).

For example, the AI system can be used to detect discrepancies between tax reports submitted by taxpayers and transaction data registered in financial institutions.

AI can be used to monitor tax compliance automatically, identify violations, and send warnings to taxpayers or tax workers.

With the ability to process data in real-time, AI can help detect suspicious activity or tax evasion attempts made by large individuals or companies.

The use of artificial intelligence also allows us to personalize services for taxpayers.

With AI-based analysis, taxation systems can provide taxpayers with more personal recommendations or services. For example, AI can help taxpayers understand their tax obligations by providing guidance and reminders based on their historical data.

In addition, AI also improves fiscal predictions and planning. By analyzing existing data, AI can help governments predict future tax revenues more accurately. This can help more effective fiscal planning, enabling governments to allocate state budgets more efficiently and on target.

According to data from the Organization for Economic Cooperation and Development (OECD), tax administration digitization has proven effective in increasing tax compliance and tax collection efficiency in various countries.

Countries such as Estonia and South Korea have succeeded in implementing a highly efficient digital-based tax system, with a high level of compliance and significant reduction in administrative costs.

In Indonesia, the Directorate General of Taxes (DGT) has launched various digitalization initiatives, such as e-Filing, e-Bupot, and e-Factures.

Based on DGT data, in 2022, e-Filing has been used by more than 75 percent of taxpayers, with around 13 million tax reports reported electronically. This shows significant progress in the adoption of technology by Indonesian taxpayers.

In addition, OECD also reports that the application of Artificial Intelligence (AI) in tax administration in developing countries, including Indonesia, can increase the efficiency of tax collection by up to 20 percent.

The AI system can identify tax evasion patterns and assist in law enforcement more quickly and accurately.