Interesting article/blog

How AI Can Help Both Tax Collectors and Taxpayers
By Thomas Cantens and Herve Tourpe

"New technologies have the potential to improve the relationship between governments and citizens. Tax portals, customs IT systems and online services have simplified interactions with public authorities, reduced bureaucratic hurdles, and increased transparency. Now, generative artificial intelligence (GenAI) is emerging as the next transformative force. Known for its ability to understand and produce human language, GenAI opens possibilities that go beyond simple automation. However, in an area as politically sensitive as taxation, it also raises important questions that could quickly undermine trust.

Tax authorities are beginning to explore GenAI, though most efforts are still at an early, experimental stage. The most evident area so far has been on improving communication with taxpayers.

In Singapore, a virtual assistant answers tax questions in multiple languages and has cut call-center inquiries by half. Korea has deployed an AI guide to help citizens file and pay taxes. In France, AI can analyze incoming emails and propose draft responses for civil servants to validate. While these applications are promising, a more profound question emerges: Can GenAI significantly alter the relationship between governments and citizens? Furthermore, how will it influence the way citizens experience and perceive taxation—a politically sensitive process that is governed by law yet deeply intertwined with social norms and practices?

What’s new with GenAI?

Most AI systems currently used by tax and customs authorities are predictive and built for a single function. They analyze large sets of structured data—like past tax declarations or transactions—to produce things like risk scores to indicate possible fraud. By contrast, GenAI is a generalist system that understands almost all forms of information and is designed to interact with humans in any language. It can handle a range of tasks, from drafting letters to providing interactive guidance about tax regulations and assisting officers in their investigations.

By training a GenAI agent with legal texts, tax codes, operating procedures, and internal guidelines, administrations can adapt it to specific needs. The result is a dynamic system capable of understanding and producing content that both civil servants and taxpayers can interact with.

Transforming the State-Society Relationship

While AI tools already in use often enhance efficiency, they have not fundamentally changed the way revenue authorities work or engage with citizens. They mostly replaced manual tasks or systems for econometric or statistical modelling.

With GenAI, there are more profound implications. Internally, it can help tax and customs officials to focus on analytical and judgment-based roles, allowing them to become oversight specialists and increasing their productivity. Externally, it can reduce the knowledge gap between administrations and taxpayers, aiding in the interpretation of complex provisions, navigating laws, identifying deductions, and even auto-filling forms.

For low-income countries, GenAI offers the opportunity to drive organizational reforms and leapfrog into the most modern systems. For example, in Madagascar, the customs authority wants to use GenAI to improve risk management, combat fraud and increase revenue, using data accumulated over 10 years to train its system.

The human-like interactions offered by AI chat tools can personalize the process, as shown in Singapore and Korea, where users can ask questions and receive plain language replies. Citizens’ organizations, academics, and political parties can also use GenAI to examine proposed reforms, compare scenarios, and engage in deeper policy debates. This two-way transformation could increase overall trust, making taxation feel less like a frustrating obligation and more like a shared responsibility of both taxpayers and governments.

Preconditions for success

Despite its potential, GenAI also comes with challenges. Issues related to data quality, ethics, privacy concerns and hallucinations (i.e., incorrect results) must be addressed to reinforce and not erode trust. For instance, Korea’s approach—directing particularly sensitive queries to human agents—reflects the need for careful oversight of confidential matters. Results must be explainable and perceived as fair in all cases.

Effective knowledge management is another requirement. Revenue authorities have extensive laws, regulations, case records, and operational manuals. However, scattered archives and incomplete digitization can hamper efforts to train AI systems effectively. A human must determine which documents are accurate, relevant, and suitable for inclusion in the training material.

As GenAI becomes integrated into various aspects of revenue administration, employees will need to be trained to interpret, correct, and complement its outputs. Policymakers must ensure that errors are reported and addressed promptly.

By providing human-like capabilities to support taxpayers and tax authorities, GenAI can act as both taxman and taxpayer assistant, automating routine tasks, clarifying complex issues, and fostering a more transparent and collaborative relationship. This technology can lower administrative hurdles, demystify tax obligations, and invite broader participation in policy debates. However, shaping it properly requires strong leadership, ethical policy frameworks, and vigilant oversight of data quality, privacy, and accuracy."

https://content.govdelivery.com/accounts/USIMF/bulletins/3d40efb

Tracking public expenditure to assess impact on different aspects of life has been made much more of a possibility with the advances in IT and associated software.  When I carried out research initially on the regional impact of defence expenditure way back in the early 1970s and then on public expenditure and taxation on the regions in the UK this required delving into the basis data to see if there was any classification and, if not, building it up from the available information.  Nowadays such classification is built into the system in many countries given the experience from Subnational PEFAs.  Although SN PEFAs only cover expenditures and revenues within the subnational jurisdiction, data on central government expenditure within geographical areas is provided in many countries (for example Georgia, Ukraine and Moldova).  The expansion of PEFA to also focus on Climate and Gender incorporates tracking in CRPFM-2 Tracking climate-related expenditure and GRPFM-6 Tracking budget expenditure for gender equality though such tracking is much more a work-in-progress.

A recent paper “Counting what matters how to classify, account and track spending for prevention” by Andrew O’Brien and Anita Charlesworth https://demos.co.uk/wp-content/uploads/2024/12/Counting-what-matters_2024_Dec_V4.pdf.  The paper by Demos and the Health Foundation argues for Preventative Departmental Expenditure Limits (PDELs).  The reports structure is:
Context page 4
Overview page 5
The prevention measurement challenge: public spending classifications page 6
The prevention measurement challenge: types of prevention activity page 10
Preventative expenditure and health page 13
Preventative expenditure and homelessness page 18
Preventative expenditure and children’s social care page 23
Building a system to implement PDEL page 27
PDEL and parliamentary accountability page 31
Conclusion page 35

One of the challenges addressed in the paper are the definitional complexities.  One of the points made is that the classification of expenditure must be presentable in a way that can advance a significant important policy goal to justify the effort of measuring and tracking this form of expenditure.  It uses the case of capital expenditure as an example.  The broad argument is that Spending Reviews should be policy related and take a wider rather than narrower classification related to impact. 

Given the use of software and IT, how widespread could this approach be developed?  The Demos and Health Foundation paper makes sense given that prevention is better than cure as the saying goes. Any other cross cutting areas that would benefit from such an approach?  Over to the PFM Boarders for a New Year’s debate.......?

Interesting article which uses terminology of health taxes for specific excise taxes rather than sin taxes!

Health taxes: missed opportunities for health and health-care financing

Helen Clark Cathrine Lofthus Robert Marten Kumanan Rasanathana

Short introduction

Every year more than 10 million people die unnecessarily from consuming tobacco, alcohol, and sugary beverages.  In the wake of the COVID-19 pandemic and other crises constraining fiscal space, financing for health care and social services is stagnating or facing cuts, endangering the achievement of the Sustainable Development Goal (SDG) targets. Yet, a new report from the Task Force on Fiscal Policy for Health, supported by Bloomberg Philanthropies, aiming to address the growing global burden of non-communicable diseases, shows that governments globally are missing the opportunity to implement a simple solution: a one-time tax increase on tobacco, alcohol, and sugary beverages (so-called health taxes); raising prices 50% would raise US$3•7 trillion over the next 5 years—$2•1 trillion in low-income and middle-income countries and $1•6 trillion in high-income countries. These resources could be used to invest in and realise the recent UN Summit of the Future's call to “turbo-charge” the full achievement of the SDGs before 2030.

Full article at Health taxes: missed opportunities for health and health-care financing - The Lancet Volume 404, Issue 10466p1905-1907November 16, 2024
https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(24)02427-9/fulltext?dgcid=raven_jbs_etoc_email

The House of Lords Food, Diet and Obesity Committee demands that the Government should develop a comprehensive, integrated long-term new strategy to fix our food system, underpinned by a new legislative framework. This is the key conclusion of the Committee’s report, ‘Recipe for health: a plan to fix our broken food system’.

https://committees.parliament.uk/committee/698/food-diet-and-obesity-committee/news/203372/the-government-needs-a-plan-to-fix-our-broken-food-system-and-turn-the-tide-on-the-public-health-emergency/

Shorthand story: We need a plan to fix our broken food system
Inquiry: Food, Diet and Obesity

The report finds that obesity and diet-related disease are a public health emergency that costs society billions each year in healthcare costs and lost productivity.

Key recommendations

There is no silver bullet. As part of the new comprehensive strategy, the Government should:

•   make large food businesses report on the healthiness of their sales and exclude businesses that derive more than a defined share of sales from less healthy products from any discussions on the formation of policy on food, diet and obesity prevention.
•   give the Food Standards Agency (FSA) independent oversight of the food system.
•   introduce a salt and sugar reformulation tax on food manufacturers, building on the success of the Soft Drinks Industry Levy. The Government should consider how to use the revenue to make healthier food cheaper, particularly for people living with food insecurity.
•   ban the advertising of less healthy food across all media by the end of this Parliament, following the planned 9pm watershed and ban on paid-for online advertising in October 2025.
•   commission further research into the links between ultra-processed foods (UPFs) and adverse health outcomes and review dietary guidelines to reflect any new evidence. The rapidly growing body of epidemiological evidence showing correlation between consumption of UPFs and poor health outcomes is alarming. Beyond energy and nutrient content, causal links between other properties of UPFs and poor health outcomes have not at the present time been clearly demonstrated. To understand any links, more research is needed.
•   immediately develop an ambitious strategy for maternal and infant nutrition and drive up compliance with the school food standards. This will help break the vicious cycle by which children living with obesity are five times more likely to become adults with obesity.
•   enable auto-enrolment for Healthy Start and free school meals and review the costs and benefits to public health of increasing funding and widening eligibility for both schemes. This is essential to help families living in poverty afford healthy food and to begin closing the gaping inequalities in unhealthy diets and obesity rates.

The report notes that:

•   Two-thirds of adults are overweight and just under a third are living with obesity.
•   After tobacco, diet-related risks now make the biggest contribution to years of life lost. The annual societal cost of obesity is at least 1–2% of UK GDP.
•   Unhealthy diets are the primary driver of obesity, with people in all income groups failing to meet dietary recommendations.
•   There has been an utter failure to tackle this crisis. Between 1992 and 2020, successive governments proposed nearly 700 wide-ranging policies to tackle obesity in England, but obesity rates have continued to rise.
•   The food industry has strong incentives to produce and sell highly profitable unhealthy products. Voluntary efforts to promote healthier food have failed. Mandatory regulation has to be introduced.
•   Many people struggle to pay the bills and have neither the time nor the facilities to cook meals from scratch. Healthier food is also often more expensive than less healthy food. The report focuses on what we can do to ensure the food industry makes healthier food accessible and affordable for all.

Chair's comments
Baroness Walmsley, Chair of the Food, Diet and Obesity Committee, said:

“Food should be a pleasure and contribute to our health and wellbeing, but it is making too many people ill. Something must be going wrong if almost two in five children are leaving primary school with overweight or obesity and so many people are finding it hard to feed healthy food to their families. That is why we took a root and branch look at the food system and analysed what had gone wrong over the past few decades.

“Over the last 30 years successive governments have failed to reduce obesity rates, despite hundreds of policy initiatives. This failure is largely due to policies that focused on personal choice and responsibility out of misguided fears of the ‘nanny state’. Both the Government and the food industry must take responsibility for what has gone wrong and take urgent steps to put it right.

“We hope, given the recent comments from the Prime Minister, Lord Darzi and the Secretary of State for Health, that there is now an appetite to shift towards prevention of ill health. We urge the Government to look favourably on our plan to fix our broken food system and accept that not only is it cost-effective, but that it would lead to a lot less human misery.”

Electric Car Subsidies Are a Plus, but Could Be Improved, Study Finds
Hunt Allcott, Reigner Kane, Maximilian S. Maydanchik, Joseph S. Shapiro & Felix Tintelnot

Working Paper 33032
DOI 10.3386/w33032
Issue Date October 2024

We study electric vehicle (EV) tax credits in the US Inflation Reduction Act (IRA), the largest climate policy in US history, with three goals. First, we provide the first ex-post microeconomic welfare analysis of this central component of the IRA. Event studies around changes in eligibility for EV tax credits find that short-run economic incidence falls largely on consumers. Additionally, domestic content restrictions on tax credits for purchased vehicles have driven enormous shifts to leasing. Our equilibrium model shows that compared to pre-IRA policy, IRA EV credits generated $1.87 of US benefits per dollar spent in 2023, at taxpayer cost of $32,000 per additional EV sold. Compared to scenarios with no EV credits, however, the IRA EV credits created only $1.02 of benefits per dollar of government spending. Second, we characterize the gains from policies targeting heterogeneity in externalities across vehicles. We find that relative to uniform credits, differentiating credits across EVs according to their heterogeneous externalities would substantially increase policy benefits. Third, we quantify tradeoffs in the IRA EV credits between foreign and domestic welfare and between trade and the environment. We find that the IRA EV credits benefit the environment but undermine trade, since they decrease global carbon emissions but use profit shifting to decrease foreign producer surplus. A controversial IRA loophole that removes domestic content restrictions on tax credits for EV leases has negative domestic benefits.


https://www.nber.org/papers/w33032