Artificial Intelligence automating optimising tax code mapping in tax engines and ERP’s
Tax codes, short digit and numeric codes, provide the information tax engines, ERP’s or accounting systems need to correctly identify the right VAT, GST or sales tax rates and reporting for any transaction. At VATCalc, we have been early adopters of AI tax code mapping as well as AI for item classification for VAT determination.
AI can significantly enhance this tax code mapping in tax engines, such as our VAT Calculator, streamlining the complex and error-prone process of classifying financial transactions according to tax codes. This means full pre-implementation coding in seconds rather than days using expensive consultants who then need to be regularly brought back as your business model, products and supply chains evolve. Oh, or someone changes the tax legislation!
Here’s a summary of how AI can contribute to this domain:
- Automated Classification: AI, particularly machine learning algorithms, can be trained on vast datasets of historical VAT transactions and their corresponding tax codes. By learning patterns and rules from this data, AI can automatically classify new transactions with a high degree of accuracy. This reduces the manual effort required and minimizes the risk of human error, ensuring that transactions are correctly mapped to the appropriate tax codes.
- Natural Language Processing (NLP): NLP techniques enable AI to understand and process unstructured data, such as textual descriptions of transactions. By interpreting the language used in transaction descriptions, AI can deduce the relevant tax codes. This is especially useful for handling varied and complex product descriptions that would otherwise require significant human interpretation.
- Pattern Recognition: AI excels at identifying patterns and anomalies. It can analyze large volumes of VAT transaction data to detect inconsistencies or unusual patterns that may indicate incorrect tax code mapping. This capability helps ensure compliance with tax regulations and identifies potential areas for audit or review.
- Continuous Learning and Adaptation: AI systems can continuously learn from new data and feedback, improving their accuracy and efficiency over time. As VAT or GST laws and regulations change, AI models can be updated to incorporate new rules, ensuring that tax code mapping remains accurate and up-to-date without requiring extensive manual reprogramming.
- Integration with Existing Systems: AI can be integrated with existing tax engines and enterprise resource planning (ERP) systems, providing seamless and real-time tax code mapping. This integration ensures that financial data flows smoothly across systems, with AI handling the complex task of tax code classification in the background.
- Handling Complexity and Variability: Tax codes can be complex and vary significantly across jurisdictions, industries and goods vs services. AI can manage this complexity by using sophisticated models that account for multiple variables and exceptions. This capability is particularly beneficial for multinational corporations that need to comply with diverse tax regulations.
- Enhanced Decision Support: AI can provide insights and recommendations based on transaction data, helping tax professionals make informed decisions. By analyzing trends and projecting tax liabilities, AI can assist in strategic planning and compliance management.
- Scalability: AI systems can handle large volumes of transactions efficiently, making them ideal for organizations with significant transaction data. This scalability ensures that tax code mapping can keep pace with business growth and increasing transaction complexity.
Read how tax authorities AI adoption is improving many other areas of VAT calculation and reporting.
