Blockchain is more than just a buzzword. It might be tempting to write the concept off as a passing trend, but blockchain’s potential is as practical and promising as it gets. The technology is already making waves all across the private sector, but what if it could change government actions too?
Implementing blockchain into the tax system could yield several positive results. You may think of it as a developing or distant technology, but the future of blockchain-centered taxes may not be far off. Most experts believe that governments will start collecting taxes with this technology in as little as five years.
Current Tax System Shortcomings
You’re probably well aware that taxes can be a bit of a headache. Although specific systems vary from area to area, traditional approaches to tax collection all exhibit consistent flaws. Filing taxes is often a complicated process, which can lead to misinformation and accidental legal breaches.
Tax evasion and fraud are also prevalent issues across nearly all governments. Crafty individuals and businesses can take advantage of the complexities of taxation to get away with not paying all of their taxes. Even worse, cracks in the system can allow criminals to steal people’s identities.
Many of these concerns may be nearly impossible to fix with traditional tax methods, with their inherent shortcomings. As global social issues like climate change and international trade grow more prevalent, tax reform is more crucial than ever. Blockchain could provide the change these systems need.
Blockchain Could Transform Taxes
You may, as many people do, associate blockchain with cryptocurrency, but the two aren’t inseparable. Blockchain is a record of data that you can add information to, but not tamper with, providing a traceable and secure method of making transactions. Cryptocurrency like Bitcoin requires blockchain to function, thanks to many of the same reasons that make it ideal for taxes.
Taxes collected from all sources, from state or local sales tax to federal income tax, could benefit from blockchains. Governments are already beginning to implement the technology in areas like the FDA, so you wouldn’t be mistaken in thinking they could use it in taxes soon.
By nature, blockchain is transparent, secure, fast and cuts out intermediaries, making it a promising prospect for tax collection.
More Transparency
Anyone can see blockchain transactions at every step of the process. These systems are also decentralized, meaning they don’t belong to any person or organization, allowing them to operate independently and without bias. If you start or complete a transaction on a blockchain, the other party can’t cheat you out of the deal.
With blockchain, people can’t lie about or hide their tax or transaction history. Similarly, corrupted government officials can’t manipulate the data. Blockchain’s transparency reduces the likelihood of mistakes or fraud happening during tax collection.
Reduced Costs
Tax season can be costly for both you and the government. Blockchain enables peer-to-peer transactions, which can eliminate the fees you might incur by using credit companies or other third parties.
Because blockchain transactions generate an instant and easily trackable record, tax brokers would be able to work in less time. Instead of filing through months of bank records, you could use an agreement like a smart contract to pay taxes on a transaction automatically. This process saves time, which in turn saves money.
Improved Security
One of the most enticing aspects of blockchains is that they are immutable and encrypted. Neither party in a blockchain transaction can corrupt or change the data recorded in the chain, making it more secure than virtually any other option.
Blockchains record data as a block that’s locked in a specific place along a chain of similar blocks. By attaching transactions to a fixed position inside a massive log of information, it would be nearly impossible to hack into it.
Increased Speed
Blockchains don’t rely on any service’s network or server. This independence means that verification and processing don’t take anywhere near as long as traditional means. Transactions via blockchain are near-instantaneous.
With this significant increase in speed, governments wouldn’t need to spend as many resources in collecting and sorting through taxes. It also means that filing taxes wouldn’t be as stretched-out and tiresome a process for you either.
Blockchain is still in its early stages, so it could be some time before it could be practical on a national scale for something as complex as taxes. There are also a few roadblocks standing in the way of full-scale adoption. Some governments have shown resistance to cryptocurrency, which may make them slow to trust crypto’s underlying technology.
The Path to Blockchain Tax Systems
Shifting the entire tax system over to blockchain at once could cause major disruptions. It’s an entirely different process, so a sudden shift could slow down or mess up current operations, making things worse before they get better.
Despite this, blockchain’s potential is hard to ignore. The economy in its whole is moving to an online, digital landscape, so tax systems should too. By starting with small, carefully monitored changes, governments could slowly adopt blockchain technology in a move towards a more secure and convenient future.