Digital Transformation and the Use of Artificial Intelligence to Enhance Financial Transparency and Ensure Tax and Social Insurance Compliance: Reducing the Double Gap

Abstract

The phenomenon of employers withholding amounts deducted from employees’ salaries that should be paid to tax and social insurance authorities—while also failing to pay the employer’s share—represents a double-layered gap that affects both the public treasury and workers’ rights in Egypt. This practice leads to massive financial losses estimated at 80–100 billion Egyptian pounds annually, weakening the government’s ability to finance public services and undermining the sustainability of social insurance funds.

This study relies on analyzing financial and tax data to estimate the losses resulting from non-compliance with tax and social insurance obligations, while also examining the broader impact on employment and the macro-economy. By reviewing previous research, the study highlights the role of digital systems and artificial intelligence in combating this phenomenon and enhancing legal compliance.

The study proposes innovative technological solutions, including:

• Electronically linking payroll systems with financial institutions to ensure the automatic transfer of tax and insurance contributions.
• Activating smart digital oversight through artificial intelligence and data analytics to proactively detect violations.
• Imposing immediate fines and stricter legal penalties on non-compliant companies, helping narrow the financial gap and improve transparency.

The goal of this study is to propose reform policies based on financial technology to enhance tax and insurance compliance, thereby positively impacting the stability of the Egyptian economy and protecting workers’ rights.