By Varahasimhan Srinivasan
In recent years, the inclusion of AI (Artificial intelligence) presented a promising opportunity to improve tax more thorough compliance process. Businesses around the world are adopting AI and intelligent automation to meet the growing expectations of boards and tax administrations, as well as to automate complex processes in the tax world.
Despite the indispensable role of human oversight in ensuring trust and accuracy in financial matters, AI, in its current form, augments human capabilities and promotes efficiency. Additionally, as businesses expand into new markets and comply with complex cross-border compliance requirements, such as Harmonized System (HS) codes, AI adoption becomes increasingly relevant. Businesses that want to improve their financial efficiency and streamline their tax tasks can harness the potential of AI. technology.
AI supports classification of Harmonized System (HS) codes
Global cross-border e-commerce surpassed $1 trillion in 2023, making the importance of having balanced commerce systems greater than ever. The Harmonized System (HS), a standardized method of classifying traded products, plays a key role here, but classifying and assigning the correct HS code can be difficult for businesses. By leveraging AI, businesses can automate HS code classification, and the technology can learn as HS code rules change. The integration of AI into HS code management is transformative, using its learning capabilities to make accurate predictions.
Additionally, AI improves the product classification process, reducing the time needed to seek advice from human tax professionals. This allows businesses to benefit from increased efficiency and speed in classification and a reduction in the risk of misclassification often associated with human error.
Contribute to increasing the efficiency of tax management
Today’s global tax landscape demands increased transparency and collaboration between tax authorities around the world, leading to increased compliance burdens for businesses. This increased complexity and potential tax risks require stronger solutions. AI is an important tool to overcome these obstacles, providing better data efficiency and increased productivity.
As businesses large and small embrace tax digitalization, the adoption of AI-based tax automation systems is becoming a common practice. For exampleIn Indiastart-ups have already started leveraging AI for accounting, customer management and marketing Solutions to simplify tax declarations.
Automation and AI are gradually replacing manual processes, transforming organizations into more service-oriented entities. While human involvement remains vital for trust and accuracy in financial matters, AI improves human efficiency.
Support end-to-end tax compliance
Tax processes are notoriously complex, but AI and ML (Machine Learning) are increasingly focusing on this complexity. Many aspects of tax functions rely on human expertise developed over years to understand the nuances of regulations and administrative decisions. Due to the intricacies involved, the adoption of AI and ML is found in tax-related activities.
However, AI offers significant efficiency gains by consuming large volumes of tax information and using extraction techniques. This can save businesses up to 30-40% of the time typically spent on such tasks. AI, powered by ML algorithms, can classify entities into different groups, similar to automated customer segmentation. Beyond this, AI can also categorize tax notices, letters or contract clauses, saving time that would otherwise be spent reading these documents.
Additionally, AI-powered product taxonomy enables accurate categorization predictions based on category ID and taxonomy tags. Using machine learning for product classification avoids costly manual errors. Dealing with a large volume of products from different countries and retailers presents many opportunities for errors. An AI-based system uses data such as manufacturer details and product descriptions to automatically ensure personalized classification and accurate tariff codes. The machine-learning classification module adapts to each country’s code in the Harmonized System, facilitating seamless shipments worldwide.
Additionally, advanced AI has entered the tax function, providing many practical applications from academic research and professional services firms. Although it seems unlikely that AI robots will replace human tax accountants, AI applications will likely play an important role in helping tax experts. These applications can aid in detecting errors, classifying transactions, estimating audit risks, and proposing beneficial tax strategies in complex global legal frameworks.
And after
Globally, the integration of AI assistants in the tax compliance industry is likely to grow, handling various tasks such as data analysis and anomaly audits and supporting tax research and filing processes . AI helps automate manual cross-border compliance activities to improve operational efficiency, minimize errors and facilitate trade.
We’re still in the early days of AI in tax, which means businesses can expect more value from the technology as we move forward. For businesses looking to expand into new markets, AI will be another key tool, along with automation, to streamline tax management and alleviate teams’ time and resource-intensive work. Businesses seeking to succeed in a global context economy should leverage automation technology to meet today’s compliance requirements and explore AI capabilities to meet tomorrow’s requirements.
The author is Director, Engineering, Avalara
