|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 governments".
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.
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