Brazilian state embraces explainable AI for a fair and sustainable tax environment

The state of Ceará in Brazil needed to improve the monitoring of tax compliance among its retail vendors to enable an equitable and economically sustainable tax environment. This effort required the collection and analysis of millions of digital sales receipts each day to uncover possible errors and tax avoidance. To address this, the state adopted the HMX Tax Intelligence System (TIS) solution, featuring proprietary use of AI to identify compliance issues and provide detailed explanations for efficient follow-up. TIS has generated a 7 percent annual increase in tax revenues over the past three years, compared with 1 percent growth where it has not been implemented.

Customer challenges

Ceará is the eighth-largest state in Brazil. Its finance department—Secretaria da Fazenda do Ceará, or Sefaz-CE—is committed to providing a fair and sustainable tax environment to support a diverse and vibrant economy that includes 60,000 retail vendors of varying sizes across several industries. Ceara recently implemented digital sales receipts, which created a challenge in the state's ability to efficiently process large volumes of sales transactions so it could detect errors or tax avoidance. Sefaz-CE needed an artificial intelligence (AI) system that could augment and complement the knowledge of its expert analysts.

Partner solution

Five years ago, HMX implemented its Tax Intelligence System, which uniquely captures Sefaz-CE institutional knowledge and enhances it through the application of explainable AI. TIS processes millions of sales transactions in real time to detect possible compliance issues. The solution's findings include detailed explanations to help analysts and auditors understand compliance issues, so they can provide fairer and more efficient follow-up. TIS utilizes Azure Cloud Services for reliable on-demand infrastructure, as well as Azure Functions to support its AI.

Customer benefits

Implementation of TIS resulted in daily processing of more than 2.5 million transactions from more than 60,000 installed point-of-sale devices operated by 36,700 vendors. Processing of these transactions in one year resulted in a 21 percent increase in new tax revenue from the previous year and an 84 percent improvement in audit efficiency. The early warning capabilities of TIS can spot trends indicating fraud, and new noncompliance patterns are more easily detected with the new information.

“A big part of the power for TIS comes from its construction as a Microsoft Azure-native product. That provides the flexibility to scale up and down as needed, and TIS deploys in a hybrid, public-private cloud—a benefit for those customers sensitive to keeping their data on-site.”

Michael Barnett, Executive Vice President for Cognitive Engineering, HMX