Three ways GenAI is already transforming tax and five more impacts it may have soon

The tax functions of businesses around the world are under enormous amount of pressure. These include global tax policy changes, increasing and more intense tax controversy, talent shortages, economic uncertainty, and the shifting geopolitical landscape. Rapid advancements in generative AI (GenAI) may offer some relief.

GenAI has commanded the attention of leaders across the business world who recognize the potential yet are at different stages of adoption. A recent EY survey found 43% of CEOs have already begun investing in AI and another 45% intend to in the next year; International Data Corporation (IDC) forecasts that spending on GenAI solutions will reach $143 billion in 2027, with a 5-year compound annual growth rate of 73.3%. Nevertheless, EY research also finds 90% of organizations are still in the earliest stages of AI maturity — running proofs-of-concept or developing capabilities in specific areas.

Tax functions, the “data epicenters” of most organizations, are leading the way in demonstrating how AI can break-down the traditional data silos and transform outputs. Many are already working with highly productive GenAI co-pilot tools that dramatically improve their operations and lay the groundwork for process improvement. Soon, tax directors and their GenAI-powered insights will be one of the most important advisers to the business.

Take payroll, the one function in a business that touches every employee. In the past, businesses have struggled to answer payroll-related questions quickly and accurately. Traditional call centers, basic chatbots, local language lines and employee information portals have often failed to delight employees, improve their experiences and they are equally costly, inefficient, and generally ineffective. Further, anyone who has used a chatbot recently has probably experienced the frustration of trying to get an answer to a specific question and resorting to human help.

The award-winning EY Payroll Chatbot has changed that practically overnight. We built a large language model and GenAI chatbot that incorporated regulatory compliance elements with company policies. To date, our payroll Azure Open AI GPT chatbot has improved the employee experience by more than 25%, increased the accuracy of answers by more than 30%, and reduced the business cost of answering employee questions by more than 80%. Pretty extraordinary results all framed around making the working world work better.

It’s not just about more powerful or smarter chatbots. There’s more.? Our EY “Guru assistant”, (noting we like to cleverly name our tools), allows anyone to create a bot, train a bot, deploy a bot, and integrate your own tax data with the bot’s knowledge to obtain real-time, specific, and relevant tax insights. Let’s give you some examples. The tool can be used to clean up data. Barely legible receipts across multiple formats and in different languages submitted for reimbursement by employees traveling for business can be imported and understood. Further, sorting these accurately for value-added taxes is a major challenge and existing tools only get it right about 35% of the time. GenAI can penetrate even the poorest quality PDFs, enhancing the ability of key VAT-relevant fields to be accurately captured and understood, and it can do this in bulk. This approach improves workflows, significantly reduces the risk of error, eliminates manual reviews, and moves tasks that used to take hours or even days of labor to minutes.

GenAI tools are smart. Take the example of EY Alwin. One of its many strengths is helping to solve a problem that has long vexed tax departments: sorting and cleaning invoices that may not get properly categorized by the accounts payable department. Regrettably, incorrect classifications have significant tax and cash flow consequences including GST, VAT, and sales tax recapture, as well as reclassification of fixed assets, accounting method changes, and updates to depreciation effective lives. EY Alwin's AI-powered accounts payable assistant allows you to bypass the labor-intensive manual mapping process. The tool presents invoices to our tax professionals with various determinations already made (for example, UNSPSC, Commodity, and Global Trade HTS codes). All the human must do is review and verify the bot’s work.

These tools are “co-pilots” or “second brains”— there to amplify and empower tax professionals. To make them smarter with the data they handle. To enable them to bring even more insights to the businesses.

That’s just what’s happening now. In the very near future, I foresee GenAI having even bigger impacts on how tax functions serve their businesses. Some of these developments will likely include:

• GenAI monitoring organizations’ tax data in real time. This will help improve compliance with laws, regulations, organizational transfer pricing, ESG policies, as examples, by detecting discrepancies in real time, using predictive analytics to spot potential challenges before they evolve into problems or risks.
• GenAI may greatly streamline the tax compliance process. It will help enable real-time data sharing between taxpayers and tax administrators, making the entire process easier for both, and allow any concerns to be addressed quickly and with a common set of data.?We may even get to a point where the corporate tax return itself becomes a relic of the past, like the abacus and spreadsheets.
• GenAI might eventually lead to lower tax controversy as the first two predictions become a reality. Less controversy can spark a virtuous cycle in which more trust is built between taxpayers and tax administrators. That will help facilitate more use of pre-filing tools such as advanced pricing agreements (APAs).
• GenAI may help create a new era of forecasting and optimized decision-making. It will automate and anticipate complex calculations, allowing tax departments and their organizations to better adapt to changing regulations and market conditions.
• GenAI is expected to accelerate the tax leader’s role as a strategic advisor to the C-suite by providing real-time insights from their organization’s entire data estate to make better business decisions.

Ultimately, GenAI is expected to have a very real impact on everything we do in tax, from policy, to the way that businesses record, report and pay tax, including how we use tax data to inform and support business decisions. The most important thing for businesses thinking about GenAI, is to focus purposefully on those areas which show the greatest opportunity for long-term transformation rather than just short-term efficiency gains. Many tax functions as data rich centers are leading the way. Let’s hope the rest of the business takes note!

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.