Being able to track information 'has always been the taxman's dream'- Pascal Saint-Amans, OECD
Governments around the world are seeking new sources of revenue, and value-added tax (VAT) is the key revenue driver and the largest contribution to governmental budgets. Each year billions of dollars are lost in tax revenue due to non-compliance, evasion, fraud and non-collection.As global tax environment becomes increasingly complex it requires new solutions to increase transparency and close the tax gap.
Tax authorities have invested heavily in digitalisation, data integration and analytics systems to improve tax collection and prevent tax fraud. They are leveraging benefits of "AI" and "Advanced Analytic" on the endless tax data they collect to take in-depth look at how businesses & industries are performing and identify bottlenecks in the tax system.
"Data is not oil. Oil is a fossil fuel with limitations. Data is air that allows us to breathe and thrive. Lose air and you suffocate."- Chris Skinner Blog
The world of tax is changing rapidly and “real-time reporting' is one of the hottest topics in the VAT compliance world. Governments around the globe are demanding real-time information from the businesses, and Tax authorities are collaborating across the border and collecting more information than ever before to identify and act on tax issues due to changing environment and global nature of businesses.
This changes the way taxes are reported, filed and collected, disrupting the traditional compliance process and accelerating reporting and filing obligations for businesses.
Many countries have already adopted digitization & they require taxpayers to report VAT transaction data with new requirements such as, SAF-T, e-invoicing or real-time reporting.
"Latin America", was the pioneer of Digital VAT reporting, took off in response to fraud.
"Brazil", introduced measures in 2008 requiring corporations to begin filing their VAT transactions digitally and issue digital invoice for any intracompany, B2B or B2C sales.
In "Europe", countries are increasingly adopting SAF-T created by the OECD, which gives tax authorities access to data in an easily readable format for effective tax inspections.
United Arab Emirates,There is a prescribed format (.csv) for submitting data to the tax authorities for audits known as 'FTA Audit File ('FAF')', similar to SAF-T which supports the figures declared in their VAT return.
Companies operating in several countries should be aware and prepared for the fact that data they submit will be shared with other tax authorities worldwide, and they have to be VAT compliant in all the countries where they conducts business.
OECD's Forum on Tax Administration (FTA) advocates that;
Block chain invented over a decade ago as a public transaction ledger of the cryptocurrency bitcoin in 2008, is ready to unleash a wave of innovation across every industry and sector. When combined with Big Data, Artificial Intelligence and Human Expertise it opens up a huge range of possibilities for the Tax Function.
Blockchain application in tax has the potential to move the function from retroactive analysis and historical financial information gathering to a position where transactions can be recorded in real-time and may allow earlier collection & oversight through digital data.
It could streamline and accelerate business processes,increase the speed, accuracy,collection of data, improve cyber security, and reduce or eliminate the role of intermediaries.
It allows to store digital invoices on the shared ledger that both seller and buyer have verified. On this immutable data foundation, smart contracts will calculate the VAT amount on invoice and automate the VAT settlement by routing VAT amount directly to the tax authority & non-VAT part to the company's account.
Both Governments and tax authorities are discovering how to use block chain technology to improve tax collection and prevent tax fraud.
Missing Intra-Community Trader fraud, or Missing trader fraud, the abuse of the VAT rules on cross-border transactions is most familiar scam in the EU, and contributes one third of VAT fraud in Europe, representing a loss of 60 billion euros each year.
Blockchain has the potential to reduce this gap significantly through audit trail across supply chains, automatic settlements and identity management & two-sided validated invoices.
Customs duty, Traders and customs brokers are required to provide information or documentary proof to benefit from any potential reliefs or reductions, or verify that products are legal and not dangerous for import, and are in compliance with trade agreements.
If trading were recorded in a blockchain and the customs authorities had access to the chain, they could verify accuracy, origin & nature of the goods at every stage and can automatically collect duties as goods transit across borders, cutting out third-party declarations.
In case of Excise taxes, blockchain could track cross-border movements and calculate more accurate duties on products , reducing smuggling and counterfeiting.
"What is revolutionary is that block chain, has potential to Disrupt and will bring fundamental shift in how data is being collected and exchanged - from information being 'pushed' to taxation authorities towards a position where it is being 'pulled' by them.