Blockchain: The Next Frontier for Tax Administrations

The term "blockchain" is on many people’s lips and for good reason; it is a potentially transformational technology that could have as much impact as the arrival of the Internet in the 1990s. The ability to create a transparent and immutable record of transactions between parties that may not fully trust one another has obvious application to finance and financial regulation. Add to that the ability to automate transactions themselves, through "smart contracts" and you have a recipe for slashing transactional costs and reducing the need for traditional intermediaries. But what about taxation? A lot of thinking on the application of blockchain to financial markets is already underway but tax risks falling behind.

To fill this gap the Global Tax Policy Centre at Vienna University of Economics and Business initiated in March a program of work to study the impact of blockchain on taxation with a ground breaking meeting of senior tax officials, legal experts, industry specialists, technologists and academics. These initial discussions confirmed that blockchain has the potential to transform taxation too. It may be possible to embed tax compliance in the very processes businesses use to transact, practically eliminating compliance cost and removing many of the traditional reasons for non-compliance and tax debts.

The participants, which included the CATA secretariat, the Commissioners from Rwanda and Kenya and officials from 6 other CATA tax administrations, identified four priority areas for future work: VAT, Payroll taxes, Transfer Pricing issues and Customs (the WCO attended the meeting) and agreed that it would be useful to continue to work in the multi stakeholder forum.

It is equally clear that a new approach to taxation based on the blockchain needs to be informed by a much better understanding of how the technology actually works, which problems it can solve and which are better tackled another way. The Centre will now lead a multi disciplinarian effort to identify the true potential of blockchain to transform taxation, based on a rigorous analysis of the attributes of a fast evolving technology and a deep understanding of the fabric of our tax systems.

The CATA secrétariat will continue to follow closely this work and report back periodically. CATA Member countries that would like to participate in the group can contact maeve.nic.samhradain@wu.ac.at or go to the Tax Policy Centre web site.