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The Rise of Real-Time Taxation

Are you ready for real-time taxation?

In the past year, the phrase has been mentioned with growing frequency among governmental tax administrators, executives of technology companies, and an interesting collection of thought leaders in the global tax realm. The concept’s application to indirect taxes is particularly compelling, especially with regard to trillions of dollars of sales taxes that small to mid-sized businesses (SMBs) manage and send to tax jurisdictions around the world.

Here’s how real-time taxation works: when a product or services transaction occurs – imagine paying your drycleaner – it is recorded by the merchant’s point-of-sale (POS) system. At that exact time, a tax calculation determines the amount of tax that goes to the government. That tax also is immediately delivered to the government’s account while the remainder of the transaction fee stays with the merchant.

It’s a tidy process to say the least. The drycleaner no longer needs to hold the taxes owed to the government, or to complete and send a return to the government.

Blockchain, or distributed ledger technology, is the third type of technology (in addition to the POS system and the tax-calculation engine) that enables this type of innovation to work. Like most other innovations, real-time taxation features:

  • A compelling driver: Global governments’ fervent drive to collect more revenue more immediately with far fewer errors and instances of fraud;
  • New enablers: Blockchain technology’s smart contracts guarantee the accuracy and security of the real-time tax transfer from merchant to government; and
  • Mutual benefits: Governments benefit from accurate, complete and immediate receipt of tax revenue while merchants benefit from much less complicated, time-consuming and expensive tax-management process.

As is also the case with other breakthrough technologies, blockchain inspires thought leaders and decision-makers to ask new questions about traditional ways of doing things.

As more and more questions – and test cases – concerning real-time taxation crop up, we’ll keep you posted on what it means for your own tax management activities so that you can be ready to take advantage of new opportunities.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.

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About this Contributor

David Deputy Headshot
David Deputy
Director, Strategic Development & Emerging Markets

David Deputy is Director of Strategic Development and Emerging Markets, managing the development of enterprise data management solutions. David brings 20+ years experience in ERP solutions, tax analytics and business intelligence software solutions. His background also includes work at Oracle, corporate finance and in bank regulation. David holds an MBA from Cornell and a Finance degree from the University of Florida.

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