AI in Tax Administration: GovTech and Inclusive Public Finance

Tax administration remains one of the most critical pillars of economic governance in developing countries. Yet persistent structural challenges — large informal sectors, tax evasion, weak taxpayer identification systems, and fragmented government databases — continue to erode domestic revenue potential.

According to the IMF and World Bank, many low-income countries (LICs) and fragile states still collect less than 15% of GDP in tax revenue — a threshold widely associated with financing essential public services and sustained state capacity. IMF research estimates that emerging market and low-income economies need USD 3 trillion annually through 2030 to finance development goals and the climate transition — roughly 7% of their combined GDP.

AI-powered tax administration platforms are now capable of detecting suspicious transaction patterns, predicting compliance risk, automating return verification, integrating banking and GST/VAT systems, and monitoring transfer pricing anomalies. The rise of GovTech is reshaping how public finance systems operate globally — and the window for developing countries to leapfrog legacy infrastructure is open.

Figure 01 Tax-to-GDP ratios — regional comparison vs 15% development threshold (2022–2024)

OECD average (2024)34.1%

Latin America & Caribbean21.5%

Asia-Pacific (2022)19.3%

Middle-income countries18.9%

Africa average (2022)16.0%

Low-income countries13.5%

15% dev. threshold15.0%

"Given that these countries have an untapped tax potential of 8–9 percent of GDP, collecting more revenue through taxation is a better solution than borrowing."

— IMF Finance & Development, Sep 2024

This analysis combines institutional datasets, AI-driven tax administration frameworks, and digital governance research. The table below lists primary data sources, all publicly accessible.

Institution	Dataset / resource	Use in analysis
World Bank	Tax Revenue % GDP Indicators	Country-level tax-to-GDP benchmarking
IMF	WP 25/89: Leveraging Digital Tech in Tax Collection	GovTech + firm digitalization impact
IMF	World Revenue Longitudinal Database (World) 2026	Longitudinal revenue trends, 193 countries
UNDP	Tax for SDGs Initiative	Inclusive public finance & SDG alignment
OECD	Tax Administration Digitalization Initiatives 2025	Digital technology adoption benchmarks
OECD	Governing with AI: Tax Administration 2025	AI adoption patterns across OECD members
UNU-WIDER / ICTD	Government Revenue Dataset (GRD) 2025	Developing country revenue trends
World Bank	GovTech Innovation Challenge 2025 (Ghana)	Live GovTech case: informal sector tax ID

AI and analytics models applied

Finding 1 — Digital tax systems significantly improve revenue collection

IMF Working Paper 25/89 (May 2025) is the most comprehensive cross-country study on this link. Its key finding: a one-standard-deviation increase in firm digitalization is associated with an increase in tax revenues-to-GDP of up to 3 percentage points — but only when combined with GovTech adoption. This synergy effect is particularly strong among high-risk small and informal enterprises in the service sector.

India's experience validates this at scale. IMF Finance & Development (Sep 2024) reports that GST revenue collection grew by more than 50 basis points of GDP since 2018, processing times for electronic returns fell sharply, and the noncorporate taxpayer base — including small businesses and individuals — expanded markedly.

Figure 02 Estimated tax-to-GDP uplift from digitalization reforms (percentage points of GDP)

Firm dig. + GovTech synergy (max)+3.0pp

E-invoicing reforms+0.75pp

India GST since 2018+0.50pp

E-filing adoption+0.40pp

Finding 2 — AI reduces compliance gaps and fraud risk

AI-driven anomaly detection systems identify fake invoice networks, suspicious VAT/GST refund claims, transfer pricing inconsistencies, and high-risk taxpayer clusters. The OECD's 2025 Governing with AI report notes that AI is now being used to analyze unstructured data — including handwritten documents and social media — to uncover hidden connections indicating tax evasion. 29 of 38 OECD members use AI in tax administration as of 2024 (OECD ITTI Survey).

Beyond advanced economies: Egypt's Tax Authority built an e-invoicing and e-receipt solution on cloud services to tackle its shadow economy, improving compliance by reducing friction for taxpayers across multiple submission channels. Mexico's Tax Administration Service (SAT) uses AI to analyze invoice and banking data, flagging fraud cases and recording improved tax recovery rates.

Finding 3 — Inclusive digital public finance expands economic participation

The UNDP's Tax for SDGs Initiative emphasizes that inclusive digital public services improve governance transparency and increase formal economic participation. Digital identity systems, mobile payments, and integrated tax platforms help governments expand the tax base, improve SME formalization, increase financial inclusion, and reduce administrative costs.

A live example: the World Bank GovTech Innovation Challenge (Dec 2025) selected six companies from 136 global applicants to develop proof-of-concept AI solutions for Ghana's Revenue Authority — specifically targeting informal sector income tax identification and e-commerce VAT compliance.

Figure 03 Digital tax technology adoption — share of FTA member tax administrations (OECD 2024/2025)

Digital identity access~90%

APIs developed (80%+ public)80%+

Prefilled PIT returns~65%

Prefilled VAT returns~40%

Prefilled CIT returns~25%

Finding 4 — Developing economies can leapfrog legacy infrastructure

Unlike advanced economies constrained by legacy systems, developing countries can directly adopt cloud-based, AI-enabled tax ecosystems. The OECD's 2025 digitalization report shows more than 80% of tax administrations are developing APIs — enabling real-time data exchange with third-party systems including banks, customs agencies, and corporate registries. Key leapfrog technologies:

• →E-invoicing systems that auto-populate VAT/GST returns and reduce manual errors.
• →Digital GST/VAT tracking linked to banking and payment platforms.
• →AI-powered audit selection reducing cost-per-assessment while improving yield.
• →Real-time reporting platforms replacing quarterly paper-based submissions.
• →Mobile-first taxpayer onboarding integrating informal sector participants.

Finding 5 — GovTech and public trust are closely linked

Transparent digital tax systems reduce corruption opportunities and improve accountability. When taxpayers see improved service delivery and reduced administrative friction, voluntary compliance improves — creating a self-reinforcing cycle. The IMF notes that digital public infrastructure "builds trust in government" and drives sustainable revenue collection.