A few years back, blockchain education was relatively new to the global population, with only a few applications for the finance sector. But today, we see that this technology is emerging with its wide potential to bring solutions to many year-long issues that global businesses and governments are facing. And one of the spaces where we can expect it to bring positive change is taxation. In India, tax evasion is a big issue. Furthermore, the blockchain expert believe that the data storing mechanism of blockchain can assist in detecting the evaders. Let us explore the topic in more detail.
Table of contents
- Relationship tax administration and blockchain
- Use cases of blockchain in the area of taxation
- Blockchain regimes
- Real-time reporting and compliance
- Tax invoices
- Customs documentation
- Facilitating getting rebate, refund, relief to combat fraud behaviour
- Closing Thoughts
Relationship tax administration and blockchain
In India, we see that the tax administration community is beginning to consider the use case of blockchain technology in its space. In fact, the blockchain developer states that soon blockchain applications will be helping tax administrations in a number of problem areas.
Furthermore, we can also expect that blockchain will have applications combined with other innovative technologies, for example, machine learning, artificial intelligence, the internet of things and robotic process automation. Additionally, the blockchain experts are seeking solutions for the following queries relevant to taxation other than detecting tax evaders:
- Can distributed ledger technology of blockchain eradicate the requirement of invoices?
- Can the government use cryptocurrencies to store and refund international VAT?
Use cases of blockchain in the area of taxation
Here, customs administrations and VAT can possibly build blockchain platforms for transmitting payment and tax data between Government portals and taxpayers. Further, block-chain can either include taxpayers within a solitary jurisdiction or can cross numerous jurisdictions. But we will have to see the level of blockchain education to turn this use case into a perfectly functional reality.
Real-time reporting and compliance
Global tax administration demands real-time data from businesses to perform their GST liabilities. Here, blockchain technology can efficiently boost data collection accuracy, speed, and ease. Thus, it will help improve the functionality of GST compliance and simultaneously decrease the enforcement cost. If you want to learn how data storage mechanisms work in block-chain technology, then taking blockchain certifications will give you the optimum knowledge.
Tax invoice is one of the important documents for VAT. In terms of the blockchain technology-based regime, verification of a VAT invoice will need a digital fingerprint. Further, it will use the consensus mechanism of blockchain technology to collect the digital signatures of all the involved parties.
Here, the digital signature and fingerprint will instantly verify the respective block to have a permanent link with the previous and subsequent block. Further, the tax office will be able to check the data more effectively. Hence the total history of transactions will be available on the digital ledger.
In addition to this, all the members of an approved tax-auditing program can easily pull up the entire transaction data for a particular item using a valid invoice. However, if you want to understand this concept, you will need to attend blockchain education classes.
For Indian traders, export controls and customs declaration rely on comprehensive and precise information to detect the origin and destination point of items. Aside from this, it also contains information about the goods’ end-use, classification and composition. Furthermore, it will ensure that the data mentions legitimate payment of duties as well as comply with regulations.
Evidently, the reliability and integrity of this kind of data are important. However, it becomes difficult to attain as usually third parties are the sources of all the essential details. Hence the chances of data manipulation are high which is beneficial for tax evaders. Aside from this data error, wrong inputs can lead to incorrect auditing of the taxation. In this scenario, decentralization and smart contracts are the vital aspects that can solve this issue. Hence organisations need to get more familiar with the concepts of block-chain including smart contracts. For this, they can either connect with robust blockchain experts or opt for blockchain certifications for their potential employees.
Facilitating the rebate, refund, relief to combat fraud behaviour
On the one hand, where immediate information verification through blockchain technology allows tax authorities to detect any inconsistency in the data. On the other hand, it helps taxpayers in claiming GST and VAT deductions as well as customs refunds and rebates.
Here, invalid data for a tax deduction can cause serious problems with many GST and VAT systems. Presently, a payer of VAT maintains a valid tax invoice. Furthermore, the payer can take advantage to offset the VAT detail on the document in the form of the input tax against output tax. Also, they can play a refund amount if there is an absence of output tax.
Further, this data is applicable even if the tax payment of the subject is due. Here the applicable VAT invoice works as a check on the tax office. In case input details on a document that the subject uses to claim the input tax, then it can cause tax administration to bear huge losses. Hence, needless to mention, block-chain’s data verification capability, immutability and traceability can easily resolve this issue.
In conclusion, we can say that blockchain technology can definitely benefit in the area of tax evasion in India as well as across the world. Moreover, organizations can train their star employees to efficiently implement block-chain applications for taxation due to the availability of blockchain certifications.
In fact, providing details of its transaction, including its where, when, and what block-chain, can help detect any gaps in the tax payment documents of which person.
If you want to learn more about block-chain and its application, then check out the BLOCKCHAIN COUNCIL. The platform offers robust blockchain certifications you can consider to gain expertise in the field.