The OECD’s “Tax Administration 2025” report, a comparative study of 58 jurisdictions (including India), reveals a profound and accelerating shift toward digitalization and the use of Artificial Intelligence (AI). The use of AI in tax administration has grown significantly, surging from 9% in 2016 to 69% in 2023, with an additional 24% of administrations currently implementing it for future use.
This technological pivot, which has made e-filing the norm (nearly 90% of personal income tax returns) and driven a 56% decline in in-person contacts since 2014, has yielded significant efficiency gains. The average cost of collection ratio has steadily declined, dropping to 73 cents per 100 units of revenue collected in 2023. Despite these gains, the report highlights that the VAT gap remains a persistent challenge, averaging 10.4% across jurisdictions, and total collectable arrears stood at EUR 990 billion in 2023. The report also flags a major workforce challenge, with 28% of tax administration staff aged 55 or older, signaling an urgent need to recruit digital skills and manage knowledge transfer.
This report provides strong validation for India’s digital-first strategy, confirming that investments in AI-driven compliance (like Project INSIGHT) and digital public infrastructure (like the GST Network) are the global standard for reducing administrative costs. The high average VAT gap of 10.4% underscores the critical importance of India’s continued efforts to close its own GST gap. Furthermore, the report’s finding that 28% of the tax workforce is aged 55 or older signals an urgent policy need for Indian tax authorities (CBDT and CBIC) to accelerate the recruitment and training of staff with data science and AI-specific skills.
What is the “VAT Gap” mentioned in the report?→ The VAT (Value Added Tax) Gap is the difference between the total VAT revenue that is theoretically owed to the government (based on economic activity) and the amount actually collected. It is a key metric for measuring the effectiveness of indirect tax compliance and identifying revenue losses due to fraud, evasion, policy gaps, and administrative inefficiencies. In India, this is analogous to the “GST Gap”.
Follow the full report here: Tax Administration 2025
