|Blockchain is a
new entry this year
Although lumps of code don't generally make the Global Tax
50 list, blockchain has earned its place with its huge
potential to revolutionise how tax administration, compliance
and data exchange happens.
Blockchain, the distributed ledger technology, has the
potential to offer transparent transactions, but at the same
time restrict who has access to the data. It can eliminate
fraud with the ability to trace every transaction and verify
its legitimacy. The tamper-proof technology could also make tax
returns a thing of the past with real-time information being
updated across each network of users.
Deloitte describes the technology as "redefining what it
means to transact", and PwC says blockchain could "cut costs
and add value within a business, between businesses, between
businesses and consumers, and between businesses and
The technology could solve the arguments we are seeing today
on whether country-by-country reports should be public, or
whether beneficial ownership registers should be accessible by
anyone with the choice of open or closed networks. If you have
a technology in place that allows you to be transparent, but at
the same time select who sees your data and how much of it, and
also in a secure environment, everyone could be a winner.
Already, several governments are looking into how to
implement blockchain technology into their tax systems.
China's tax administration is exploring the use of
blockchain as its digital data on taxpayers grow to ensure the
information is secure. It is also considering using the
technology to deal with the use of false identities and ensure
effective registration and authentication of taxpayers.
Meanwhile, smaller countries are also looking into blockchain's
applications. Rwanda, for example, is considering introducing
blockchain to help administer its VAT system.
"If you ask me which countries are leading the digital tax
administration, the answer is Singapore, Estonia, Finland,
Israel, and Rwanda," says Professor Jeffrey Owens, director of
WU Global Tax Policy Center. "Why those five countries? Because
they're small so they're more agile because the government has
said right from the outset it wants a digital society. To get a
digitalised society, it needs a digital government."
"We are at this stage now where, particularly with things
like blockchain, everybody sees the potential, but nobody is
quite sure about is and so nobody takes the leap. So, what you
get is a whole series of experiments. Sweden is looking at how
it can use blockchain to help it tax land and property, and
Finland is beginning to use blockchain for payroll taxes," says
Owens. "So, in a sense, we're at this stage were nobody's
making the big jump but instead taking small steps. Let's see
how it works in that particular area."
But, as an old Chinese proverb says, it is better to take
many small steps in the right direction than to make a great
leap forward only to stumble backward. If the experiments work
and the technology offers the security and benefits that both
taxpayers and tax authorities want, blockchain could hold the
answer to a lot of tax matters.