4 Blockchain Benefits for Tax Authorities
It’s not just businesses that are embracing distributed ledger technologies. Tax administrations have powerful incentives for adoption, too.
Indeed, in at least one important arena – tax compliance – authorities will need to work closely with businesses in order to realize the full potential of the technology.
I was reminded of these truths recently while co-writing a white paper published jointly by Vertex, Microsoft and PwC: Two practical cases of blockchain for tax compliance. It’s the second of two white papers Vertex recently developed with Microsoft and PwC; you can download both white papers here.
The report lists four benefits tax jurisdictions can expect to reap from blockchain initiatives. While the context within the white paper is fairly specific, all four benefits are widely applicable to other tax-related uses of the technology. Here are the advantages:
1. Greater integrity and transparency.
Blockchain and other distributed ledger technologies (DLTs) can reduce opportunities for fraud and corruption by providing transparency for all stakeholders, reducing the asymmetry of information among the parties.
2. Reduced cost of compliance.
The rules of compliance can be written into the blockchain protocol through smart contracts. This enables the automatic self-execution of relevant transactions that are consistent with these rules, which may reduce levels of noncompliance with tax filings and payments, which in turn reduces the need for audits.
3. Improved tax collections.
Because smart contracts self-execute payments to tax authorities when due, blockchain may increase tax collections – for example, value added tax (VAT) revenues or tourism levies. All payments and transactions would be traceable.
4. Incentivized tax compliance.
By leveraging blockchain to improve transparency, tax authorities could stimulate tax compliance and promote economic growth possibilities, especially for small businesses impacted by the compliance costs.
Blockchain for Tax Compliance
Vertex, Microsoft and PwC explore how emerging blockchain technology reduces costs, improves tax collection and encourages compliance and organizational trust.
The field of possibilities is a wide one for forward-thinking agencies. In concluding the white paper, we invite readers to “imagine what will be happening over the next few years as blockchain technology is used for solutions deemed technologically impossible in the past.” Keep an eye on Tax Matters—we’ll continue to update you as the blockchain story unfolds.
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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