The question is no longer whether blockchain will disrupt the tax system, but how far, how fast and how to ensure your business is up to speed. Putting the hype aside, what does blockchain really mean for tax compliance and management within your business? What are the main risks and opportunities? How can you begin preparing for the shake-up ahead?
Gearing up for blockchain
In an increasingly digitised economy, in which almost everything can be ordered at the tap of a smartphone and transactions are routinely processed and analysed in real-time, it can sometimes feel like the tax system is still stuck in analogue.
Blockchain is set to play a crucial role in the digitisation of taxation by providing the ‘wiring’ needed for real-time recordkeeping, verification and information exchange. Automatically fulfilled blockchain-enabled ‘smart contracts’ also offer faster and more efficient ways to evaluate and settle tax liabilities.
To date, the most prominent application of blockchain technology has been cryptocurrency. Yet this is only one of many avenues. On a basic level for tax, we could see faster and cheaper compliance by rationalising processes and simplifying data storage and exchange. But this isn’t all. Beyond doing what’s already being done more efficiently, the use of blockchain-enabled smart contracts opens up opportunities to take tax management forward. This includes instant settlement of sales tax, value added tax (VAT) or goods and services tax (GST).
In governments’ sights
Governments and tax authorities have blockchain firmly in their sights as part of a wider move towards digitising the tax system and assessing tax in real-time. The initial focus is likely to be indirect taxation, though other areas of tax management such as transfer pricing could be brought into play as blockchain networks develop. Eventually, blockchain could become the primary means of tax collection.
What’s in it for you?
The opportunities to rationalise complex processes and reduce the need for repetitive documentation between parties are good starting points. Crucially, there are also opportunities to bring greater certainty to tax management and reduce the risk of disputes.
Overcoming the hurdles
Governments are looking to blockchain to simplify and speed up tax settlement. Many larger corporations are looking to bring the technology into their systems. While this creates challenges, blockchain application could also pave the way for the wider digitisation of taxation, greater certainty in tax management and closer integration between tax, supply and sales.
If blockchain is coming anyway, it’s important to make the most of the potential openings. Please visit www.grantthornton.global/blockchain. If you would like to discuss any of the areas raised, please contact us.