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Blockchain solutions for Malta's tax system could revolutionize the way the government could start to collect taxes. Photo: Shutterstock
Blockchain solutions for Malta's tax system: you have to dream! The biggest headache or dilemma for any government is whether the Treasury is collecting the fair amount of taxes from its people in a fair and effective manner. In addition, governments are also interested in reducing the fight against tax evasion through efficient and effective collection methods. However, a blockchain solution for Malta's tax system may not be so far-fetched.
Over the years, Malta has made its way into this minefield, and while progress has been made, the Ministry of Finance and the government generally feel that more can be done, since recovering such losses of income could mean better finances for the country, which would lead to better services and much needed infrastructure investments.
Blockchain solutions for Malta's tax system could revolutionize the way the government could start to collect taxes. It could potentially break the way tax payments are processed. Will this happen overnight? The answer is no, since not only technology must be tested to ensure that it works as it should (we are talking about taxes, after all), but also because the implementation of blockchain technology will not only require the integration of the government database and IT systems, but its implementation could potentially affect many other areas, from identity to intellectual property rights and to Malta's legal infrastructure system.
However, if for a moment we had to put aside the difficulties of its implementation, what would be the benefits of having a national tax system on the blockchain? What are the bockchain solutions for the Malta tax system? The first advantage that would come to mind is that a blockchain-based system would allow the implementation of automated tax processes in real time. This would mean that businesses would be able to calculate their tax returns in a safe and online environment. Payments to the Inland Revenue could be made in a timely manner and without interruption, with an immediate confirmation of the payment of the shares by the Treasury.
Blockchain solutions for Malta's tax system could reduce the burden of calculating VAT which would increase the certainty of amounts owed to the government
An advantageous solution for both employers and the government is related to the payment of tax levies by employees and social security contributions derived from labor income. Currently an employer is responsible for the transition to the government of tax due by its employees and their social security contributions. Through the development of a system based on smart contracts that involved the necessary parts, namely the Inland Revenue, banks and other entities deemed necessary, tax and social security taxes would be calculated, paid and transferred to the company. Revenue Agency while employees receive their salary after deduction of tax deductions from their bank account.
Such systems could potentially lead to a cheaper and real-time process.
Another important piece in the Malta tax puzzle is the Value Added Tax (VAT). VAT provides one of the largest contributions to government budgets and is the main driver of tax administrations. Many believe that VAT is a complex and burdensome process that can result in prohibitive costs in terms of accounting and VAT compliance services to ensure that the correct quotas are provided to the VAT department. VAT calculations are currently highly dependent on the companies themselves to ensure that the correct VAT amounts are reported and this could be a timely and costly problem for the entities.
Blockchain technology could offer industry some advantages they might want to consider. The commercial transactions carried out by the entity would be recorded on a system based on the blockchain through the use of specially designed smart contracts. This means that the registration of such transactions can be carried out in real time, thus reducing the administrative burden for the entity.
At an operational level, blockchain solutions for Malta's tax system could reduce the burden of calculating VAT which would increase the certainty of amounts owed to the government. The risk of fraud and error would be reduced, which in turn would lead to greater peace of mind for the business entity, as it would be safer for the VAT department to have all the correct information and the need for a review or dispute to be solving in the courts would be more a remote possibility.
On the other hand, the government will raise quotas more timely, which would allow it to better manage its finances. Furthermore, the level of VAT fraud should also decrease as a blockchain-based system would allow multiple checks and verification of transactions from all aspects, which in turn would give the government greater peace of mind that the level of VAT which is gathering reflects the economic reality of the day.
Blockchain offers the opportunity to simplify complex processes and allows businesses and individuals to become paperless through the removal of multiple documents necessary to formalize the regulation of government tax quotas.
As already mentioned, it could also reduce the number of disputes between companies, employers, employees or individuals with the relevant government departments, thus allowing companies to make better use of their cash flows rather than maintaining reserves to cover potential tax disputes, which end also benefit for the economy.
Through such a system the government could bring a further integration between the Inland Revenue, the VAT Department and the customs, thus obtaining a clearer picture of the income streams, which would help to better plan its expenses, economic forecasts, budgeting and investment processes.
This article does not intend to provide legal, financial or tax advice. Readers who request further information can send an e-mail to [email protected] or [email protected].
Nicholas Warren is CSB's Senior Financial Services & Blockchain.
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