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 & Caribbean 21.5%

Asia-Pacific (2022) 19.3%

Middle-income countries 18.9%

Africa average (2022) 16.0%

Low-income countries 13.5%

15% dev. threshold 15.0%

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

AI and analytics models applied

Source	Purpose	Publisher
World Bank Tax Revenue (% GDP) Indicators	Country-level tax-to-GDP benchmarking	World Bank
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	IMF
Tax for SDGs Initiative	Inclusive public finance & SDG alignment	UNDP
Tax Administration Digitalization Initiatives 2025	Digital technology adoption benchmarks	OECD
Governing with AI: Tax Administration 2025	AI adoption patterns across OECD members	OECD
Government Revenue Dataset (GRD) 2025	Developing country revenue trends	UNU-WIDER / ICTD
GovTech Innovation Challenge 2025 (Ghana)	Live GovTech case: informal sector tax ID	World Bank

Key empirical findings on digital transformation, AI risk assessment, and inclusive GovTech deployment.

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.

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 include: E-invoicing systems that auto-populate VAT/GST returns, Digital GST/VAT tracking linked to payment platforms, and AI-powered audit selection reducing cost-per-assessment.

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 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.

Based on the evidence above, five priority action areas emerge for governments, development institutions, and GovTech innovators.

Priority Action Areas

All datasets below are publicly accessible and can be downloaded directly for further research, visualization, or policy analysis.

Source	Purpose	Publisher
World Bank Tax Revenue (% GDP) Indicators	Country-wise tax revenue as % of GDP, historical series	World Bank Open Data
IMF WP 25/89: Leveraging Digital Tech in Tax Collection	Cross-country GovTech + firm digitalization impact analysis	IMF, May 2025
IMF World Database 2026	193-country tax revenue trends, 1990–2024	IMF Fiscal Affairs
UNDP Tax for SDGs Initiative	Public finance frameworks aligned to SDG financing	UNDP
OECD Tax Administration Digitalization Initiatives 2025	Digital tool adoption rates across 54 FTA member administrations	OECD, Jun 2025
OECD Governing with AI: Tax Administration	AI applications across OECD tax authorities, ITTI 2024 data	OECD, 2025
Government Revenue Dataset (GRD) 2025	Downloadable Stata/Excel dataset for developing country revenue analysis	UNU-WIDER / ICTD
IMF F&D: Creating Value for Taxpayers	India GST case study — digital public infrastructure impact	IMF Finance & Development, Sep 2024
IMF Blog: Tapping Tax Potential	8–9% GDP untapped tax potential analysis, emerging market data	IMF, Sep 2023
World Bank GovTech Challenge 2025 (Ghana)	Live case study: AI for informal sector tax compliance	World Bank, Dec 2025