When AI closes in on tax evaders in Israel
The artificial intelligence revolution is transforming tax collection in Israel. The Israel Tax Authority is transitioning from sample audits to analyzing 100% of reports, significantly increasing the likelihood of detecting undeclared income.
'Only 1% of income tax files are audited, and a potential income of billions is lost,' read a newspaper headline in 2024. About two years later, it seems that this headline belongs to a different reality. The artificial intelligence (AI) revolution, which has changed many fields, is currently changing tax collection in Israel as well.
Just recently, the director of the Israel Tax Authority said that following the introduction of AI, the authority is expected to move to 'auditing 100% of all reports – while today we scan only 4%.' These are good news for the state, which is dealing with an unprecedented deficit and needs every source of income, and less good news for those who have chosen until today to evade taxes, knowingly or not.
For years, tax enforcement was based on sample audits, voluntary reports, lengthy investigations, and cross-referencing of data that took months. Today, processes that previously required a lot of time and professional manpower are carried out within minutes. Thus, the Tax Authority is moving from a model of sample audits to a model of broader supervision over all taxpayers. As part of this, it is implementing AI systems and other technologies capable of analyzing large amounts of information, cross-referencing data in real-time, and identifying irregularities and non-reporting with high accuracy.
From the state's perspective, this is a welcome development. Since October 7, defense expenditures have soared, rehabilitation and compensation budgets have grown, and the government deficit has expanded. Collecting taxes that were not previously reported may help increase state revenues, and the new technological capabilities are expected to strengthen this trend. On the other hand, citizens who did not report their income understand that the chance of being detected has increased significantly. With the development of technology, the expansion of information sharing between countries, and the tightening of punishments, the ability to rely on information gaps and 'disappearing under the radar' is shrinking.
In recent years, the courts have adopted a strict approach toward tax offenses, recognizing their harm to the state treasury and law-abiding citizens. Alongside this, the state also offers a path to regularize the situation. In August 2025, the Tax Authority decided to renew the voluntary disclosure procedure. The procedure, which operated in the past between 2005–2019, allows those who hold undeclared income or assets to settle their affairs on their own initiative, pay the required tax, and enjoy immunity from criminal proceedings. Many of those applying through this path are not professional tax offenders, but citizens who were unaware of the reporting obligation or did not comply with it. However, the voluntary disclosure procedure is expected to end on August 31, 2026.
The new reality is clear: the combination of AI systems, international information sharing, and advanced enforcement capabilities is changing the relationship between the citizen and the tax authorities. The ability to rely on low audit chances is disappearing, and the voluntary disclosure procedure provides an opportunity to settle missing reports before enforcement proceedings reach them.
Adv. Eli Doron and Adv. Shahar Nach are tax experts from the law firm Doron, Tikotzky & Co.
