The Delhi government will soon start to use a machine-learning tool to fight tax evasion and identify bogus firms. The initial estimates suggest that the public exchequer is likely to gain up to Rs 300 crore annually by plugging the leaks and several other countries have also taken help of AI and technology to find tax evaders. In Denmark, for instance, artificial intelligence tools successfully hit 85 out of every 100 cases and 65 of these cases fall in the category of tax frauds, World Bank reported in 2018. The Nordic country used to suffer some 2 billion euros in losses. The Denmark example also helped neighbour country Norway to take preventive measures for themselves as well, the World Bank added. In France, the government is mulling on authorising combing social media so that signs of tax avoidance and fraud can be traced, Reuters reported.
For India’s initiation into technology for finding tax evaders, the AI tool has been researched and developed by two US-based Indian researchers. The tool can identify bogus firms made up by traders to evade taxes, The Indian Express reported. The tool, which is developed by Dr Aprajit Mahajan, Associate Professor, University of California, Berkeley, and postdoctoral scholar Dr Shekhar Mittal, will scrutinise a vast dataset of VAT (Value Added Tax) returns which were registered in Delhi between 2012-17.
The study, which was commissioned by the Delhi government, has concluded that similar means are used by traders to evade GST (Goods and Services Tax), and the "future iterations of machine learning will build on GST data," The Indian Express quoted Jasmine Shah, vice-chairman of Delhi Dialogue and Development Commission (DDC), as saying. The first set of findings are likely to be submitted to the government this month. The researchers have also said that their research is the first-ever systematic study on tax evasion in a country where there is weak tax compliance.
"Our results indicate that by using our tool, the tax administration can prevent fraud up to $15-45 million. Given that such data exists in many tax jurisdictions and that anecdotal evidence suggests that such false paper trails are a common problem, our work should have high policy relevance both within India and elsewhere," the researchers said in a paper.