Tax Compliance and Technological Innovation: Case Study on the Development of Tools to Assist Sales Tax Inspections to Curb Tax Fraud

Abstract

This paper mainly studies tax inspection decision-making technology, aiming to improve the accuracy and robustness of target recognition, state estimation, and autonomous decision making in complex environments by constructing an application that integrates visual, radar, and inertial navigation information. Tax inspection is a universally complex phenomenon, but little is known about the use of innovative technology to arm tax auditors with tools in monitoring it. Thus, based on the legitimacy theory, there is an agreement between taxpayers and the tax authorities regarding adequate compliance with tax legislation. The use of systemic controls by tax authorities is essential to track stakeholders’ contracts and ensure the upholding of this mandate. The case study is exploratory, using participant observation, and interventionist approach to a tax auditing. The results indicated that partnership between experienced tax auditors and IT tax auditors offered several tangible benefits to the in-house development and monitoring of an innovative application. It also indicates that OCR supports a data lake for inspectors in which stored information is available on standby during inspection. Furthermore, auditors’ use of mobile applications programmed with intelligent perception and tracking resources instead of using searches on mainframes streamlined the inspection process. The integration of professional skepticism, empathy among users, and technological innovation created a surge in independence among tax auditors and ensured focus. This paper’s contribution lies in the discussion of the enhancement of tax inspection through target recognition, drawing on legitimacy theory to rethink the relationship between taxpayers and tax authorities regarding adequate compliance with tax legislation, and presenting an exploratory case study using a participant observation, interventionist approach focused on a tax auditor. The implications of this study for policy makers, auditors, and academics are only the peak of the iceberg, as innovation in public administration presupposes efficiency. As a suggestion for future dimensions of research, we recommend the infusion of AI into these tools for further efficacy and effectiveness to mitigate fraud in the undue appropriation of taxes and undue competition.