Tax authorities’ shift to technological adoption aims to enhance efficiency, accuracy, and taxpayer compliance. However, the integration of automation, artificial intelligence (AI) and generative AI (GenAI) also raises concerns about transparency, data privacy, and potential bias.
As the Australian Taxation Office’s (ATO) and global tax authorities accelerate digital transformation, the implications for taxpayers extend far beyond faster reporting. Digital‑first administration is reshaping scrutiny, risk, and the expectations placed on tax functions.
Historically, government agencies have often been perceived as slow to adopt new technologies, with tax authorities in particular seen as highly bureaucratic and operationally constrained. Over the past five to ten years, however, a significant shift has occurred. Tax authorities across jurisdictions have begun investing heavily in digital transformation, recognising that modern economies are increasingly digital and that effective tax administration depends on modernised systems and processes.
In addition to driving efficiencies, the digitalisation of tax administration has the potential to increase allows for greater transparency. Digitised authorities can request, receive, and process taxpayer information more quickly, improving both compliance monitoring and taxpayer engagement. International bodies such as the Organisation for Economic Co-operation and Development (OECD) have relied on the digitalisation of the European Union’s member countries to help ensure taxpayers are paying their fair share.
One clear example is the global move toward e‑invoicing. As more transactions occur digitally, e‑invoicing enables tax authorities to have greater insight into transactions between online sellers and buyers since most sales take place digitally. Many jurisdictions have also increased investment in technology modernisation programs to strengthen data analytics, automation, and digital taxpayer services.
This shift is reflected in the ATO’s continued expansion of data‑driven compliance and digital services, which are reshaping how taxpayers engage with the tax system. At the same time, the growing use of AI, GenAI, and automation presents both opportunities and challenges. These technologies can improve accessibility and streamline interactions between taxpayers and authorities, but they can also create unintended consequences. Increased ease of engagement can drive higher volumes of enquiries, placing additional pressure on already stretched tax administrations. More importantly, as authorities rely more heavily on automated decision‑making, concerns arise around transparency, explainability, and the appropriate role of human judgement.
Digital tax administration increases efficiency, but it also raises the bar on data quality, transparency, and governance.
In Australia, oversight bodies such as the Inspector‑General of Taxation and Taxation Ombudsman (IGTO) play an important role in reinforcing expectations around fairness, transparency, and appropriate review mechanisms as digital processes expand.
Lack of transparency in automation and AI
There is little dispute that the digitalisation of tax administration – including the use of AI and automation – delivers benefits such as efficiency, accuracy, and cost reduction. However, these benefits can be undermined if taxpayers do not understand how automated systems are used or how decisions are made.
For many taxpayers, the algorithms underpinning AI‑driven systems are complex and opaque. Without clear explanations from tax authorities about how technology informs risk assessments, audits, or compliance actions, mistrust can develop. Transparency and communication therefore become critical components of successful digital transformation.
Data privacy and data sharing
Tax authorities hold some of the most sensitive and comprehensive data about individuals and organisations. The use of large language models to train GenAI systems raises questions about how data is collected, used, stored, and protected.
In Australia, taxpayer information is protected by strict confidentiality provisions and the broader privacy framework under the Privacy Act 1988 and the Australian Privacy Principles (APPs).
Cybersecurity threats continue to increase globally, with cyber‑attacks and ransomware incidents affecting organisations across all sectors.
Australian guidance from bodies such as the Australian Cyber Security Centre (ACSC), including the Essential Eight framework, highlights the importance of strong controls where sensitive taxpayer data is processed or shared.
Beyond the risk of data breaches, taxpayers are also concerned about how their information may be shared. While legal frameworks typically restrict the disclosure of taxpayer information, exceptions may apply in limited circumstances, including where authorised third‑party service providers are engaged. Clear governance, safeguards, and accountability are essential to maintaining trust.
Fair treatment and human intervention
Another key concern relates to bias in AI‑driven systems. If automated tools are trained on historical data that contains existing biases, those biases can be amplified at scale. Without appropriate oversight, this can result in unfair outcomes for certain individuals or groups.
International experience has shown that a lack of human intervention in automated decision‑making can allow issues to persist longer than they should. Embedding “human‑in‑the‑loop” processes – where professionals can review, question, and override automated outcomes – is critical to ensuring fairness and proportionality.
As tax authorities continue to adopt advanced technologies, many stakeholders are calling for careful governance, ongoing monitoring, and proactive efforts to identify and mitigate bias. While this is a complex challenge, establishing clear standards and accountability mechanisms can help reduce the likelihood of errors, unintended consequences, and erosion of public confidence.
Technology has undoubtedly enhanced the way governments operate and interact with taxpayers. However, as digital transformation accelerates, it is essential that tax authorities balance efficiency with transparency, innovation with accountability, and automation with human judgement.
This article is adapted and localised from “The potential impact of tax authorities’ digitalization on taxpayers”, originally published by the Thomson Reuters Institute.
