THE ROLE OF ARTIFICIAL INTELLIGENCE IN TAX COMPLIANCE: CAN AI REDUCE TAX EVASION AND IMPROVE REVENUE COLLECTION?

Artificial Intelligence (AI) is transforming tax compliance by improving fraud detection, increasing revenue collection, and streamlining tax audits. This study investigates AI’s role in reducing tax evasion and enhancing tax administration efficiency from 2020 to 2024. Using secondary data analysis, statistical evaluations, and trend assessments, we assess AI’s impact on revenue generation, fraud detection, and audit processes. The findings reveal a significant increase in AI-assisted revenue from $20 billion in 2021 to $120 billion in 2024, with a tax revenue growth rate of 7%. AI-driven fraud detection improved from identifying 14.7% of evasion cases in 2021 to 55.0% in 2024, confirming AI’s effectiveness in detecting tax fraud. Statistical analysis, including regression modeling (R² = 0.89), shows a strong correlation between AI investment and tax revenue growth, while chi-square tests confirm AI's significant role in fraud detection (p < 0.05). AI-assisted audits also reduced audit duration from 30 to 15 days and improved accuracy from 85% to 95%. Despite its benefits, AI implementation faces challenges such as high investment costs, data privacy concerns, and taxpayer resistance. To maximize AI’s potential, governments should establish standardized regulatory frameworks, invest in AI-driven tax education, and integrate ethical AI practices in compliance monitoring. Future research should explore AI’s adaptability across diverse tax jurisdictions and its long-term economic impact.