How Blockchain Technology can help Governments Solve Tax Challenges

How Blockchain Technology can help Governments Solve Tax Challenges

By Gov CIO Outlook | Friday, March 29, 2019

The primary source of income for the government is to ensure an efficient and smooth tax collection process. Many of the use cases of blockchain in the tax sector help governments to understand how blockchain can revolutionize the way government collects and spends the money.

While governments do not function as businesses for profit, they need funding to cover costs for the services they offer to the public. Most governments still fail to recover a major portion of the taxes they owe and operate under financial debt and deficit, which can lead to economic stagnation and a demur in the public services quality over the long term. Recovery of taxes is, therefore, a top financial priority for governments. In some cases, government agencies find themselves going to enormous lengths to recover these taxes, thereby leading to additional costs, riddling the whole process with inefficiencies. Using blockchain in taxation helps to make the process more capable and proficient and ensure that what they are due is paid to government agencies.

Tax policies and problems vary for different countries; the collection of taxes has some general inhibiting factors. These are defects that can be found in almost all existing tax systems inherent in the traditional methods of collecting revenue.

While avoiding taxes with the use of legal provisions to minimize the amount paid in tax is fair which is encouraged by governments, some companies and individuals are engaged in tax evasion, that is, disregarding the law to entirely or partially avoid paying due taxes. Because of the complexities and indeterminacies in tax and legal systems combined with the inability of state agencies to prove and track these malpractices, numerous high-earning entities often get away with paying unreasonably low taxes, while many pay their fair share. The US alone is estimated to lose nearly $200 billion annually due to tax evasion, according to UNU-WIDER, part of the United Nations University. This amount is higher than the annual budgets allocated to the various federal departments and to put things in perspective, NASA, the Department of Agriculture, and the Department of Education had proposed a combined budget of about $110 billion for 2018. With the implementation technologies in taxation such as blockchain and AI assures to modify such trends for the better, as is becoming evident from the various emerging technology use cases.

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