Effective Taxation System by Blockchain Technology

Abstract

One of the basic functions of a government is to deliver public services to citizens. Service delivery of this kind requires public expenditure. Hence, governments require resources to finance their expenditure. Although there are a number of different methods available to fund public expenditure, the most important one is taxation. However, governments incur costs when collecting taxes. It is, therefore, important for a government to ensure the efficiency of its tax collection system and to collect taxes in such a way that only minimal costs are incurred. Providing transparent, controllable, secure, and real-time information is vital in terms of ensuring the effectiveness of a tax collection system. Changes and developments in information and communication technologies have prompted the public sector to identify new ways to collect taxes. In recent years, discussions regarding the applicability of blockchain technology (or, more commonly referred to as crypto coins), for the public sector have emerged. In this study, the applicability of blockchain technology for use in a tax system is discussed. The properties and benefits of different blockchain technologies are analyzed in terms of both data and transparency. It has been concluded that blockchain technology could be applied in a number of areas to reduce the administrative tax burden and the costs associated with tax collection. This study, therefore, attempts to explain the applicability of blockchain technology in relation to taxation, and it clarifies (1) how blockchain technology represents a new approach to taxation, (2) how blockchain technology reduces tax expenditure, (3) how blockchain technology increases both transparency and accountability, (4) how tax evasion can be reduced using blockchain technology, and (5) how blockchain technology can reduce the administrative tax burden.