Blockchain – a secure distributed ledger that simultaneously records transactions on a large number of computers in a network – is about to make the step from the theoretical to the practical. When it does, it will fundamentally change the way businesses, people and governments operate. The technology has the potential to securely record and share information about anything that has value – money, intellectual property, art, land – information that can be trusted because everyone involved has verified it. Tax is one area where blockchain could have a profound impact.
Blockchain for Taxation
The financial and business world is excited about blockchain because it offers the potential of real-time, secure and reliable execution and recording of transactions. But there are many other implications if the technology moves into the business mainstream. Tax is one area where blockchain could have a profound impact
Ultimately, blockchain technology could offer better real-time tracking for the industry. As a digital permanent record, will this signal the end of traditional business documents, or the need for filing tax returns in the future? One can only predict now, but the possibilities blockchain can offer for businesses and the industry are profound.
Blockchain is undoubtedly one of the most promising technologies because of its ability to deliver reliable real-time information from multiple sources to a wide audience. It could be used to streamline labour- and cost-intensive processes within tax administrations and provide the desired transparency.
Blockchain potential to reduce tax fraud
Blockchain could have significant implications for helping reduce VAT fraud. It provides numerous solutions for VAT reporting through:
- Synchronization. Each party has its own full copy of all of the data (of all the entries in the ledger).
- Deterministic. Blockchain can confirm if a transaction happened or if it did not.
- Single Use. If the system records product as owned by A, and A wants to sell it, it ensures A can only transfer ownership of the product exactly once. Similarly if A owns €10, then A can only transfer out €10.
- Non-Repudiation. All transactions are digitally signed. So if there is a record of A selling the product, we can cryptographically prove that someone with A’s credentials approved that sale. There is still vulnerability if electronic credentials are stolen, but it’s a much smaller problem than the paper signature system we currently use.
- Speed. Blockchain transactions can be confirmed in about 10 minutes. Compare that to day-long processes we have today around settling stocks, property, or even ACH transfers
How Blockchain Could Affect Tax Professionals
Tax automation software has already accelerated the pace of tax determination, filing and remittance, and blockchain has the potential to further streamline the process. Should corporations record all expenses and revenue-generating transactions in a public blockchain, tax administrations would have virtual real-time access to the ledgers. The current delay between business transactions and tax remittance would be eliminated because tax could be automatically calculated and remitted as soon as a transaction is complete. It could also be automatically deducted by watchful government entities.
The impact on the compliance process could be huge. If tax is remitted with each transaction, periodic returns could be eliminated, or at least greatly altered. Audits could be less involved, but ongoing, reducing the opportunity for fraud. The cost of compliance could also be significantly reduced for businesses and government agencies.
Blockchain technology has the potential to revolutionize tax administration and data entry for tax professionals so that they can focus on advising clients. It merits close attention as it develops – and it is likely to develop rapidly. Keeping yourself well informed is essential. It will enable you to adapt your business to the new technology and advise your clients on how the technology could affect their business in the years to come.
The Anglo African team can assist you in unlocking the full potential of FinTech for the prosper of your business. If you have any queries, or if you would like further information, please contact us on 2331636 or by e-mail at firstname.lastname@example.org.