Malta commits €3m to implement AI-powered SAS for tax evasion detection

Category: AI Payments Regulatory

AIBC News speaks to experts on this revolutionary AI software which “is poised to be a game-changer in tax investigations.”

On Tuesday, Finance Minister Clyde Caruana revealed that Malta’s tax department plans to implement computer software that will send alerts to authorities when an individual or business’ stated income doesn’t correspond with their accumulated wealth. According to Caruana, this new system will enable swift and effortless detection of tax evasion by the authorities.

Implementation of computer software for effortless tax evasion detection

The IT software, which is already utilised in the UK, New Zealand, the Netherlands, Ireland, and Canada, will initially be examining VAT returns by the end of this year and will be extended to include all other tax forms within the next three years. The software performs daily analyses of individuals’ and companies’ wealth and matches it with the income they have declared.

AIBC News spoke to Paul Bonello who’s a Certified Public Accountant, Tax Practitioner, and ex-Member of the Panel of the Administrative Court Tribunal hearing tax appeals from the Income Tax Act for the period 2014 – 2022. In regards to the implementation of the new tax software, Bonello stated, “It makes sense to use every legitimate method whereby it is ensured that all taxpayers pay the tax due by them in terms of the law. This is not only a legal duty but above all a social duty. And, in order to better ensure that all perform this legal obligation we need to harness new modern methods like computer-driven statistical analysis systems like the Minister of Finance announced today.”

AIBC News also spoke to Alexiei Dingli, Professor of Artificial Intelligence at the University of Malta, who shared his insights on the topic. He believes that the new AI-powered tax technology has the potential to revolutionise the entire process. He stated, “This AI-powered technology is poised to be a game-changer in tax investigations, dramatically streamlining processes that once consumed weeks or months to just minutes. As an essential step forward, it promises to promote transparency, equity, and fairness within the economy while bolstering government revenue and securing tax compliance.

“Moreover, the success of this technology should pave the way for other government departments to adopt similar AI-driven solutions, ultimately leading to a more interconnected and efficient government. The benefits of such a connected government extend beyond enforcement, enhancing various e-gov services and creating a more effective and responsive public administration.”

€3 million allocated by the government for the software

A comprehensive strategy for tax and customs administration has been launched, including several initiatives. One of these initiatives is the implementation of a high-end statistical analysis system (SAS) that uses artificial intelligence to collect data from various registries and bank accounts. This software assesses an individual’s cash deposits and illiquid assets, such as property, land, vehicles, and boats, with the aim of helping the tax department monitor income and tax liabilities more effectively and efficiently. The government has allocated €3 million to cover the cost of this software.

According to Caruana, the implementation of this software marks the beginning of a much-needed culture change and will transform the way tax investigations are conducted. No longer will individuals be investigated merely because someone reported them anonymously, or because they were randomly selected for scrutiny. Instead, the software will carry out a daily analysis of the population, condensing weeks and months of work into a matter of minutes.

Caruana acknowledged that some people may not appreciate this effort and may view it as an attack on businesses. However, he emphasised that this was not the case. As finance minister, he could never be against economic growth, as it drives employment and wealth for the people. Nevertheless, he is not in favor of crony capitalism, where business people see paying taxes as a burden rather than a duty.

Cultural shift required for tax collection enforcement

Caruana hopes to foster an economy that rewards creativity over connections, a country where perseverance overpowers established power, and inclusivity triumphs over exclusivity. He aims to strengthen equity and reduce inequality and promote honest work over illicit influence for personal gain.

According to Caruana, the country has been slow-moving in enforcing tax collection, and a cultural shift is required due to taxes accounting for 85% of the government’s revenue. The COVID-19 pandemic and the Ukraine war put a spotlight on the government’s responsibility to provide financial assistance to families and businesses, highlighting the importance of taxes in keeping the government financially strong.

Goal of strategy launch: make tax collection service faster, simpler, and more efficient

There has been a positive trend in people coming forward to regularise their tax situation. The tax department recorded a 42% increase in tax agreements last year, allowing individuals and businesses with tax arrears to pay their dues over a specific period. This increase resulted in the tax department collecting €240 million more in VAT, not only due to economic growth but also because of the tax administration’s strengthened efforts to collect all that is due.

During the strategy launch, Tax Commissioner Joseph Caruana highlighted that the goal of the strategy is to make the tax collection service faster, simpler, data-driven, effective, efficient, personalised, and user-friendly. The International Monetary Fund also had representatives present at the launch.

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