Listen to the audio version of this article below.
As tax administrations move from pilot projects to operational use of artificial intelligence (AI), the next challenge is ensuring that innovation is implemented responsibly. The Organisation for Economic Co-operation and Development (OECD) emphasizes that AI must enhance – not compromise – the fairness, transparency, and integrity of tax systems.
AI offers tremendous potential to improve efficiency, strengthen compliance, and modernize taxpayer services. Yet, it also raises critical questions around accountability, data protection, and public trust. To manage these complexities, tax administrations must take a deliberate, well-governed approach – one that balances innovation with ethics.
First Steps for Responsible AI Adoption
In the latest report Governing with Artificial Intelligence: The State of Play and Way Forward in Core Government Functions, OECD recommends a phased and strategic roadmap for integrating AI into tax administration:
1. Start with targeted, high-value use cases: Early AI deployments should focus on areas with clear data quality and measurable outcomes, such as fraud detection, anomaly identification, or chatbots for taxpayer support.
2. Strengthen data foundations: Data quality determines AI reliability. Poorly structured or incomplete data can lead to bias and inaccurate assessments, eroding trust.
3. Develop internal expertise: Building in-house capacity ensures long-term sustainability. Training staff in data science, AI ethics, and model interpretation allows administrations to manage systems confidently.
4. Establish ethical and legal safeguards: AI decisions must be explainable, transparent, and subject to oversight. This ensures accountability and protection of taxpayer rights.
5. Maintain taxpayer trust: Clear communication about how AI is used and how data is protected fosters transparency and reinforces voluntary compliance.
These steps align with the OECD’s Tax Administration 3.0 Framework, which promotes digital ecosystems built on data integrity, fairness, and trust.
Managing Risks and Protecting Public Confidence
While AI can improve accuracy and efficiency, it introduces new risks that must be managed carefully. The OECD identifies three key areas of concern:
- Data protection and privacy: Tax data is highly sensitive. Strong cybersecurity and governance frameworks are essential.
- Transparency and explainability: Complex “black box” models can undermine fairness if taxpayers cannot understand or challenge outcomes.
- Public trust: Bias or misuse of AI can damage legitimacy. The Dutch Toeslagenaffaire, where flawed algorithms led to thousands of wrongful fraud accusations, remains a sobering reminder of the human cost of poor oversight.
To mitigate these risks, AI adoption must be guided by robust governance structures, continuous oversight, and clear ethical frameworks – ensuring that innovation strengthens rather than weakens public confidence in taxation.
Building a Trustworthy AI Ecosystem
The OECD highlights that AI should not operate in isolation but within a holistic framework that aligns legal structures, technical infrastructure, and human expertise.
To support this, the OECD Forum on Tax Administration (FTA) is developing a Framework for Trustworthy AI Application in Tax Administration under its Tax Administration 3.0 initiative. Expected in 2026, this framework will guide authorities in adopting AI systems that are transparent, accountable, and adaptable throughout their lifecycle.
By embedding ethics and accountability into every stage of AI deployment, tax administrations can ensure that technology enhances – rather than replaces – the human judgment and integrity that define effective governance.
Laying the Groundwork for AI-Ready Tax Systems
Responsible AI adoption at Tax Authorities begins with the right foundations – secure digital infrastructure, trusted data systems, well-defined adoption scenarios, and sound governance. NRD Companies supports governments and revenue authorities in creating these prerequisites for transformation.
The company’s work includes solutions such as the Virtual Fiscal Device Management System (VFDMS©), which helps tax administrations improve transparency and compliance through real-time transaction data monitoring – a vital step toward data ecosystems that can support future AI applications.
In parallel, NRD Companies contributes to AI policy and governance development. The AI Governance Framework designed for the Government of Lesotho is one example of how the company assists institutions in establishing legal, ethical, and organizational structures for responsible AI use across the public sector.
By strengthening both the technical and institutional dimensions of digital transformation, NRD Companies helps create the conditions for tax administrations to introduce AI responsibly – ensuring that innovation enhances efficiency, fairness, and trust in public finance systems.
Advancing Trust Through Responsible Innovation
AI’s expanding role in tax administration represents one of the most significant transformations in public finance. Its success, however, depends not on how rapidly it is deployed but on how wisely it is governed.
By combining strong data foundations, transparent governance, and trusted partnerships, tax administrations can ensure that AI becomes a cornerstone of smarter, fairer, and more resilient tax systems – grounded in trust, accountability, and responsible innovation.
Contact us
Explore how NRD Companies supports digital transformation and AI governance
Thank you for your message!
Our team will review it and get back to you shortly. For urgent questions, you can reach us at connect@nrdcompanies.com
