Can Blockchain Revolutionize Tax Administration?

Abstract

Experts predict that the use of smart contracts and other applications of blockchain technology can potentially revolutionize the manner in which we do business. Blockchain promises the elimination of middlemen, as well as trust, transparency, and improved access to shared information and records. Thus, it is no surprise that companies and entrepreneurs are now developing blockchain solutions for an array of markets, ranging from real estate to health care. But, can this new technology revolutionize tax administration? Our current tax administration system suffers from a large tax gap, high compliance and administrative costs, and many inefficiencies. Blockchain’s core attributes may present a solution to these shortcomings.

This Article is the first to consider the technology’s potential role in revolutionizing tax administration and the challenges that must be overcome before incorporating blockchain technology into the tax space. The Article demonstrates that implementing a blockchain-based platform for tax administration would present significant opportunities to digitalize and automate certain tax processes, minimize government information constraints, increase the transparency and trustworthiness of tax-related transactions, and reduce costs, data redundancies, and other inefficiencies involved in the tax administration process. The Article concludes, however, that many blockchain tax initiatives are merely aspirational at this point. Governments need to overcome significant challenges and limitations in order to meaningfully take advantage of blockchain technology. It, therefore, sets forth normative steps for policymakers to take in supporting the development of blockchain technology and helping it to realize its full potential in the tax space. By doing so, the Article aims to promote a proactive approach to exploring and understanding the technology’s benefits, limitations and implications, and thereby to place the government in the best position to harness the advantages of blockchain technology and modernize our system of tax administration.

Keywords: blockchain, tax, tax policy, technology, tax administration, tax gap, tax compliance

JEL Classification: K34, O30