A blockchain based VAT system : analysing its applicability in Malta

Abstract

Purpose: The main purpose of this study is to assess the relevance of a VAT system based on blockchain and the implications which this brings about on the various stakeholders. The research attempts to analyse certain difficulties encountered in today’s VAT system, including the compliance aspect and fraudulent practices which negatively impact the whole business environment. This in light of the fact that characteristics of blockchain such as transparency, immutability and verifiability may be key towards mitigating the impact of these difficulties. Design: Apart from an examination of the relevant local and foreign literature, the research objectives were satisfied through a series of nineteen semi-structured interviews with seven local businesses, seven tax practitioners, two officials from the office of the Commissioner for Revenue, two officials from the Malta Digital Innovation Authority and an ex-government member. Findings: The findings of the study outline that compliance costs are at times considered a burden for most businesses, even considering the time this process takes. Moreover, there seems to be a lack of knowledge of VAT legislation which can also present certain complications, especially when changes happen. Also, it seems that VAT fraud is a persistent problem both on a local and EU level and thus, there has been a lot of movement to address this issue. Indeed, the solution to these difficulties may lie within the use of further technology. A system based on blockchain was considered as very relevant to Malta, considering that the real-time aspect of it eases compliance whilst, its transparency and immutability leave less opportunity for fraud. Notwithstanding this, the right application of the system is key to ensure that its implementation is successful. Conclusions: The study concludes that a VAT system which is based on modern technologies, in this case blockchain, may be more appropriate, especially in consideration of the growth in the digital economy and the need for transparency within taxation systems. It is expected that fraudulent schemes become more clever as advancements in technology are made, whilst manual based processes become even less relevant, and therefore this makes advancements in taxation systems even more essential. Value: This study is of value to all those stakeholders which make use of the current VAT system, including businesses and tax practitioners, who may see a change in this system if further digitalisation is made. This study is also of value to the Office of the Commissioner for Revenue to analyse the response of certain businesses and tax practitioners towards this proposed system.