The View | China’s plan to fully automate taxes puts it ahead of the global digitalisation curve
- China’s smart tax system will cut out the need for form-filling and help prevent fraud or tax evasion
- Other countries plan to introduce similar systems, but China’s robust digital financial market and rigorous data protection laws give it a clear head start
As part of its smart taxation reform plan, China aims to completely digitalise the tax system by 2025. Big data and artificial intelligence (AI) will be used to automate the process, ensuring accuracy and eliminating the possibility of tax fraud or tax evasion. AI will personalise individuals’ taxes to maximise benefits and prefill forms. All they will need to do is confirm and pay using their smartphones.
The reform – the third by the government, following revisions to streamline tax collection in 2015 and 2018 – will advance capabilities in law enforcement, service and supervision. It will also involve major upgrades in technology, using the cloud, AI, big data and blockchain to support smart taxation. The aim is higher efficiency, lower costs and greater social satisfaction.
Big data allows China’s tax authority to connect the dots and create a detailed profile of a company or an individual and their network of relationships, as well as how money is transacted. For example, it can compare any data submitted with the bank accounts of the relevant taxpayer, related company personnel, and revenue, costs and profits of related industries. Big data and AI can also spot false accounts, false invoices, abnormal tax declarations, and so on.
China is not alone in leveraging the benefits of big data and AI to prevent tax avoidance. Bloomberg reported in 2018 that the US Internal Revenue Service is developing a system to catch tax cheats using data from bank transactions, phone records and even social media posts. The system also has access to an individual’s text messages, passport number, criminal history, and even their mother’s maiden name.
The UK’s HM Revenue and Customs (HMRC) has the Connect system, which uses big data to cross-check a billion HMRC and third-party data items to expose hidden relationships between people, organisations and data. This allows HMRC to uncover anomalies among things like bank interest, property income and other lifestyle indicators.