Why governments are excited about blockchain?

15 July 2016

John Steveni and Paul Smith blogged recently about the impact that blockchain will have on the way we do business, and in particular on the global tax system. It’s likely that blockchain will impact on many areas of our lives but one area that’s being watched with close interest is the way in which it could be used by governments around the world.

Potentially, blockchain technology has a wide range of uses for central and local government; it could be used to register and record property transactions, for example, or government-licensed assets, or intellectual property, or even to make sure that one voter uses one vote. On a day-to-day level, blockchain technology could also make government tendering processes and purchases more efficient, and reduce the potential for fraud and error.

In fact, the use of blockchain in government is more than speculation. The Isle of Man Government recently tested a blockchain registry that records which local companies are using distributed online ledgers. In Estonia, NASDAQ, which runs the country’s stock exchange, is creating an e-voting system based on the technology, and in April the government in Georgia announced a deal to develop a blockchain-based land registry.

In the UK, Cabinet Office Minister Matt Hancock announced earlier this year that the Government has started to look at blockchain as a way of improving public services, initially as a way of streamlining the process of distributing grants. He added a few other areas where the technology might also be used – to track the movement of student loans from the Treasury to a student’s account, or to track overseas aid. ‘We’re excited to explore any and all possible use cases for blockchains in government,’ he said.

#letstalkaboutax

Perhaps the blockchain potential of most interest to governments, though, is in tax collection. In May 2016, the OECD published a report, Technologies for Better Tax Administration, which explored how emerging technologies could be best used by tax administrations. Blockchain could be one of the most valuable technologies because of its ability to rapidly deliver high-quality, reliable information to a wide group of interested parties. It can deliver data in a format that’s interpretable and, in contrast to the way in which tax data is collected today, can look across a transaction and the tax treatments associated with it. In other words, both taxpayers and tax authorities can have equal confidence in the data that’s collected.

For tax departments today, the scale and detail of data that is required by tax authorities is a real challenge. Front office systems are generally set up from the point of view of information that’s useful to the organisation, and not necessarily from the point of view of compliance; it’s transaction, rather than compliance-based information. Blockchain should allow you to capture information from multiple perspectives – information that’s been verified by everyone using it. The result is more detail, more useful information and more certainty.

My view is that we’re a lot closer to this than we think. I often hear the market expressing the point of view that Blockchain is at least 5 years from being widely used by the tax authorities. But some jurisdictions will be able to move much faster than others – particularly those in less developed countries which are less restricted by legacy systems and by red tape. Considering the pace at which organisations and governments are beginning to explore and test blockchain, I think the technology, once the remaining problems are tackled, could take off very quickly indeed.

 Related blogs:

Justin Blackburn

e: justin.blackburn@uk.pwc.com

p: +44 20 7213 8723

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