In the dynamic landscape of fiscal policy and tax administration, the integration of Artificial Intelligence (AI) within Value-Added Tax (VAT) management systems offers transformative opportunities to enhance efficiency, compliance, and transparency. Amidst a complex global economic environment characterized by intricate transactions and international trade, there is a critical need for innovative approaches to VAT collection and compliance. This study embarks on an exploratory analysis of AI’s role in revolutionizing VAT management practices through the prism of open innovation—a paradigm that advocates leveraging external knowledge and technological advancements to drive internal innovation. Utilizing a qualitative research methodology, inclusive of a literature review and case studies, this paper examines the current and potential impacts of AI on VAT management practices. It delves into the application of AI in automating the processing of tax regulations, facilitating data modeling, and enhancing decision-making processes within VAT systems. Furthermore, this research evaluates the contributions of open innovation strategies, such as collaboration with external partners and engagement with user communities, to the development and continuous improvement of AI-enhanced VAT management tools. Drawing insights from interviews with development teams and tax professionals, alongside an examination of documentary evidence, this study presents a novel framework for understanding and advancing AI applications in VAT administration. It highlights the synergistic effects of AI and open innovation in creating more resilient, efficient, and transparent VAT systems. The results show that AI technologies and open innovation practices have a lot of potential to bring VAT management up to date, as long as problems like data privacy, engaging stakeholders, and the fact that tax laws are always changing are properly dealt with. This research contributes to the burgeoning discourse at the intersection of technology, taxation, and innovation, offering valuable insights for policymakers, tax authorities, and enterprises on harnessing AI for enhanced VAT management. By shedding light on the mechanisms through which AI can transform VAT systems for the better, this study underscores the potential of AI and open innovation to reshape the future of tax administration in the digital age.