Tax Fraud Reduction Using Analytics in an East European Country

Abstract

Tax authorities face the challenge of effectively identifying companies that avoid paying taxes, which is not unique to European Union countries. Limited resources often constrain tax administrators, who traditionally rely on time-consuming and labour-intensive tax audit tools. As a result of this established practice, governments are losing a lot of tax revenue. The main objective of this study is to increase the efficiency of the detection of tax evasion by applying data mining methods in the East European country Lithuania, which has a rapidly developing economy, by applying data mining methods concerning affluence-related impacts. The study develops various models for segmentation, risk assessment, behavioral templates, and tax crime detection. Results show that the data mining technique can effectively detect tax evasion and extract hidden knowledge that can be used to reduce revenue losses resulting from tax evasion. This study’s methods, software, and findings can assist decision-makers, experts, and scientists in developing countries in predicting tax fraud detection.