Blockchain Initiatives for Tax Administration
69 Pages Posted: 31 Mar 2021 Last revised: 22 Jul 2022
Date Written: March 5, 2021
A thriving body of literature discusses various legal issues related to blockchain, but often it mixes the discussion about blockchain with cryptocurrency. However, blockchain is not the same as cryptocurrency. Defined as a decentralized, immutable, peer-to-leer ledger technology, blockchain is a newly emerging data management system. The private sector—including the financial industry and supply chains—and the public sector—property records, public health, voting, and compliance, have all begun to utilize blockchain. Since more data is processed remotely, and thus digitally, the evolution of blockchain is gaining stronger momentum.
While scholarship on blockchain is growing, none of the scholarship has considered the impact of blockchain on the tax sector. This Article extends the study of blockchain to tax administration, evaluates the feasibility of incorporating blockchain within existing tax administrations, and provides policymakers with criteria to consider and some recommended designs for blockchain. Blockchain can enhance the efficiency and transparency of tax administration through its ability to deliver reliable, real-time information from many sources to a large audience. Further, a well-designed private consortium blockchain, evolved from the classic public blockchain, may effectively protect taxpayers' information. Potential areas that blockchain could enhance are payroll taxes, withholding taxes, value added taxes, transfer pricing, the sharing of information between federal, state, and local governments as well as countries.
This Article offers normative considerations for policymakers deliberating blockchain initiatives for tax administration, such as timeline, standardization, its integration with other systems, its limitations, and the accompanying legislation to regulate the government and the taxpayer’s rights and privacy. Those implications may resonate with a broader audience beyond tax policymakers.
Keywords: blockchain, distributed ledger, DLT, tax administration, tax compliance, digital, emerging technology, payroll tax, exchange of information, third-party reporting, transparency, tax privacy, taxpayer right
JEL Classification: K34, H2, H77, O3, O38,
Suggested Citation: Suggested Citation