Convergence.Tech | Chami Akmeemana | Jun 20, 2022
At Convergence.Tech, we are always looking for opportunities to use technology to solve today’s hardest problems. This time, we’re revolutionizing a 100-year old tax process using blockchain. This project brought us to Australia, where we worked with the local alcohol and spirits industry, the Australian federal government, and the ANZ bank to complete a pilot project to automate key aspects of the tax compliance and payment process. To do this, we created a ground-breaking real-time tracking system of spirit movement and tax obligation. This technology has a variety of potential applications across the globe and in different industries, including within the Canadian market.
The Australian federal government was losing an estimated $582M AUD (approximately $475M CAD) annually in lost excise revenue, and the alcohol and spirits industry agreed that significant change was required. Burdened with administrative oversight, cashflow impediments and fighting a market burdened with illicit activity, local producers also wanted to be released from the current tax and production constraints.
Our pilot project identified many benefits to revolutionizing the existing tax system for both governments and organizations, including:
- Reducing the tax gap – The tax gap is the difference between true tax liability for a given tax year and the amount that is paid on time, a difference due to nonfiling, underreporting, and the underpayment (or remittance) gap.
- Reducing compliance costs – Compliance costs refer to the time required to collect/ organize receipts and complete tax forms, accountant and other professional fees, appeal costs if applicable, and the general costs of distributing returns. Recent surveys have suggested that for transaction taxes (sales and excise taxes) this represented about 0.01% of firms’ turnover (or gross business income).
- Reducing administrative costs – Administrative costs are incurred by governments to administer and collect taxes, which have been estimated by recent studies to reflect an administrative cost ratio of 0.97% (i.e. ≈$1 per $100 tax collected).
APPLICATIONS IN CANADA – BEER, SPIRITS, FUEL & TOBACCO
The blockchain excise platform we created for the Australian government has direct applications for the way the Canadian government applies and collects commodity and indirect taxes for beer and spirits – but even more so for fuel and tobacco. Using this platform could bring in up to an additional over $440 million in lost fuel tax revenue, reduce a portion of the estimated $7 million in compliance costs for businesses, and recover over $200 million in estimated administrative costs to the government.
With respect to tobacco, the high rates of provincial and federal taxation designed to discourage smoking have led to high rates of smuggling, costing the government and companies money in non-compliance. The blockchain excise platform could bring in up to an additional $1 billion in lost cigarette tax revenue while also reducing a portion of the estimated $1 million in compliance costs for business and over $70 million in estimated administrative costs to the government.
While fuel and tobacco are the most relevant industries for blockchain implementation in Canada, the Blockchain Excise Platform is configurable to track and trace any commodity. The wide range of commodities that this can impact in Canada includes everything from agriculture and food to minerals like steel, cement and asphalt, to renewable energy, natural gas and hydrogen.
BLOCKCHAIN FOR GLOBAL EFFICIENCY
Tokenizing and tracing a physical commodity can remove red tape while creating new insights for regulators, industry, investors, and consumers.
Beyond Canada, this is an important step for the global economy and demonstrates how blockchain technology can impact outdated systems that cause unnecessary problems and expenses. The work we’re doing in Australia demonstrates significant potential for governments and businesses around the globe that could benefit from a more agile, accurate, and efficient trust-based system.
As the world continues to move forward and blockchain technology continues to evolve, Canada has the opportunity to be on the cutting edge of the change. The fact of the matter is that changing these outdated tax systems is beneficial to individuals, governments, and organizations alike. I am excited to continue leading this work at Convergence.Tech and look forward to the chance to implement our technology here at home.
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