AI in the Taxation System: A Future Within Reach

by Fatikha Faradina, Directorate General of Taxes officer

“AI will amplify human potential, not replace it.” (Satya Nadella, CEO of Microsoft)

This powerful statement captures the essence of how Artificial Intelligence (AI) can reshape our world, not as a threat, but as a transformative force. In the realm of taxation, where complexity, scale, and public trust intersect, AI presents a unique opportunity to build a smarter, fairer, and more efficient system. For countries like Indonesia, embracing AI in the taxation system means not only streamlining processes but also reimagining governance, transparency, and institutional strength. It’s an intriguing discussion topic, let’s get started.

As the world moves rapidly toward a digital-first future, public institutions are under increasing pressure to modernize. Among them, tax authorities stand at a critical junction. Charged with collecting revenue to fund public goods and services, they face growing complexity, ranging from globalized economies and sophisticated tax avoidance schemes to the sheer volume of data.

AI is more than just automation—it is the ability of machines to simulate human reasoning, learn from data, and make decisions or predictions. Within taxation, AI can analyze large datasets to detect tax fraud or errors. It can predict taxpayer behavior for risk-based audits. AI will support taxpayers through intelligent chatbots and virtual assistants. Streamline back-office functions such as matching invoices or verifying filings will be easier. Rather than replacing human judgment, AI augments it, freeing up time for more strategic or sensitive tasks.

There is always exemplary implementation of AI in developed countries’ taxation system. The UK’s HMRC uses "Connect", an AI system that sifts through over 30 data sources to spot undeclared income. The U.S. IRS applies machine learning to uncover identity theft and detect refund fraud. Singapore uses predictive analytics to target non-compliance and supports SMEs with AI-driven tools. Australia’s ATO implemented an AI-powered virtual assistant to handle millions of taxpayer queries. These examples demonstrate how AI can help reduce tax gaps, improve compliance, and make services more accessible.

Indonesia is already laying the groundwork for AI through digital transformation efforts like the robust Coretax DJP. This system aims to centralize data, automate services, and build an integrated taxation ecosystem. However, full AI adoption in Indonesia’s tax system is still emerging. There are vast opportunities to detect anomalies in financial data, personalize taxpayer education and reminders, predict and mitigate tax risks before they escalate. Yet, challenges remain such as limited infrastructure in some regions, lack of skilled AI personnel in the public sector, and the need for strong data governance policies.

To fully embrace the possibility of AI in taxation, Indonesia needs to take several key steps:

1. Invest in digital infrastructure and human capital.
2. Develop AI governance and accountability guidelines.
3. Build transparency into AI systems to foster public trust.
4. Encourage cross-sector collaboration between government, academia, and tech innovators.
5. Start small, scale wisely, pilot AI solutions before expanding nationwide.

While AI can modernize operations, real transformation requires institutional reform. One major lesson from countries like the United States is the need for a strong, independent, and authoritative tax institution. The Internal Revenue Service (IRS) operates at a federal level with autonomy, allowing it to make critical decisions without excessive political interference. In contrast, Indonesia’s Directorate General of Taxes (DGT) still functions under the Ministry of Finance, limiting its strategic flexibility. This structure becomes even more questionable when viewed through a fiscal lens. DGT who is responsible for over 70% of state revenue collection, remains a subordinate unit. If national contribution is the measure of strategic value, then DGT deserves at least equal, if not greater, standing. Elevating the Directorate General of Taxes to the same level as a ministry would not only reflect its critical role in state-building but also empower it to adopt transformative tools like AI with the autonomy and agility it requires.

From an economic perspective, embracing AI aligns with the principle of minimal sacrifice for maximum gain. Initial investments in infrastructure, training, and system reform may seem costly, but they pave the way for long-term benefits: improved compliance, increased state revenue, better taxpayer service, and stronger institutional governance. In short, a well-designed AI integration is a rational economic choice, where a relatively small input can lead to outsized and sustainable outcomes. Artificial Intelligence is no longer a futuristic dream, it is a present-day tool with transformative potential. For Indonesia, AI in taxation could mean more than just efficiency. It could signal a new era of transparency, fairness, and citizen-centric governance. But AI alone is not enough. It must be backed by strong institutions. Elevating the status of Indonesia’s tax authority, making it more autonomous, accountable, and innovative, is the next bold step toward a future-ready tax system. Embracing this possibility means not only trusting machines, but trusting in better governance. The opportunity is here. It’s time to seize it.

*)This article represents the personal opinion of the author and does not reflect the official stance of the institution where the author works.

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