[World Tax News] OECD Releases Report on AI in Government and Digital Transformation

Editorial Team – [2025] 178 taxmann.com 645 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week:

1. OECD releases report on AI in Government and digital transformation

The OECD has issued a report titled Governing with Artificial Intelligence, examining how governments are deploying AI across 11 key public functions, namely:

• • • Tax administration
    • Public financial management
    • Regulatory design and delivery
    • Civil service reform
    • Public procurement
    • Combating corruption and strengthening integrity
    • Policy evaluation
    • Civic participation and open government
    • Public service design and delivery
    • Law enforcement and disaster risk management
    • Justice administration and access to justice

AI in Tax Administration

The report notes that adoption of AI in tax administration remains limited but is gradually expanding. Current applications focus on fraud detection, risk profiling, document classification, and taxpayer support through chatbots. These tools primarily use rules-based systems and traditional machine learning, while the application of generative AI is still rare.

Challenges Identified

Wider implementation faces several obstacles, including:

• •  Legal restrictions on the use of taxpayer data
  • High requirements for fairness, explainability, and transparency
  •  Outdated IT infrastructure
  •  Limited in-house expertise and poor data quality
  •  Concerns around bias, trust, and taxpayer confidence when AI impacts compliance decisions

Future Potential and Recommendations

Despite these challenges, the OECD highlights significant untapped potential for AI to:

• • Automate repetitive compliance functions
  •  Improve audit selection and risk assessment
  •  Deliver more personalized taxpayer services
    To harness these benefits, the OECD recommends that governments:
  •  Invest in robust digital infrastructure
  •  Enhance AI literacy and capacity within tax administrations
  •  Establish clear governance and accountability frameworks
  •  Begin with low-risk, high-impact pilot projects
  •  Encourage cross-border collaboration to exchange best practices and promote responsible innovation

Source- Governing with Artificial Intelligence

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