Abstract
Businesses need trust to confidently perform trade among each other. Centralized business models are the only mature solutions available to perform trades over the Internet. However, they have many problems which includes but are not limited to the fact that these create bottleneck on the server as well as requires trusted third parties. Recently, decentralized solutions have gained significant popularity and acceptance for future businesses. The wide acceptance of such systems is indeed due to the trust management among various untrusted business stakeholders. Many solutions have been proposed in this regard to provide de-centralized infrastructure for various business models. A standard solution that is acceptable to the industry is still in demand. Hyperledger umbrella Blockchain projects, that are supported by IBM and many other industry big players are gaining popularity due to its efficient and pluggable design. In this study, the author present the idea of utilizing Blockchain to design a Value-Added Tax (VAT) system for Saudi Arabia’s newly introduced tax system. The reason to select this business model for VAT is twofold. First, it provides an untampered distributed ledger, which cannot be deceived by any party. Each transaction in the system cannot go unnoticed by the smart contract. Sec-ondly, it provides a transparent record, and updates all involved parties regarding each activity performed by stakeholders. The newly proposed system will provide a transparent database of VAT transactions according to our smart contract design and at each stage of supply chain, tax will be deducted and stored on peer-to-peer network via consensus process. The author believes that the proposed solution will have significant impact on VAT collection in the Kingdom of Saudi Arabia.
Highlights
Value Added Tax (VAT), is a self credit mechanism of indirect accumulative tax related to consumption of goods or services which is imposed on the end user as chain of business [1], [2]
This research studies contributes in terms of utilizing Blockchain for VAT in Saudi Arabia so that all possible solutions are shifted to Blockchain infrastructure
Blockchain employment in various domains is explained in the section which is followed by details of various configuration and implementation related to employing Blockchain for VATA collection in the Kingdom of Saudi Arabia
Summary
Value Added Tax (VAT), is a self credit mechanism of indirect accumulative tax related to consumption of goods or services which is imposed on the end user as chain of business [1], [2]. VAT is collected from individual customers and is paid back to the Government. VAT collection is an important process of a state administrative authority that allows a government to generate revenue from active honest tax payers and if the tax payment is not made properly the dishonest payers may reduce the tax liabilities to their own level of choices. The noncompliance of VAT implementation results in the VAT gap [5] that represents the difference between estimated tax and actual tax collected. A tax invoice is a proof that the seller has collected the VAT from the buyer. During the VAT reporting period, the difference is calculated among tax invoice paid and tax invoice received. The taxable person for VAT purposes can generate tax invoices [11]
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