Chris Berg and I appeared before a House of Representatives committee this afternoon talking about the Blockchain and taxation. Our opening statement is below.
We have been asked to make some points about the effect blockchain and similar technologies will have on taxpayer engagement with the taxation system.
The RMIT Blockchain Innovation Hub was established earlier this year as the world’s first social science research centre into the blockchain economy. The Blockchain Innovation Hub will measure and understand the economic, political, social and legal implications of blockchain, and advise governments, firms and communities on how best to take advantage of this exciting new technology.
We’d like to make a few points that we hope might stimulate further discussion and consideration. We are going to be speculative by necessity.
First, this new technology is an opportunity for Australia. We can attract high value knowledge workers by having a competitive tax and regulatory system. Governments should focus on making it easy to host cryptoeconomy services in Australia.
Second, blockchain services are going to change some of the fundamental structures of market capitalism. The twentieth century was dominated by large public companies. In the future, firms will look more like shifting networks managed by blockchains rather than the hierarchies we are used to.
This will have a number of consequences. Australia is heavily reliant on corporate tax revenue. These new firm-like structures are going to be harder to tax than the monolithic firms of the 20th century. We’ve published sceptically about the parliament’s efforts to prevent profit shifting by multinational firms. However, the born-global nature of blockchains will supercharge these trends. We do not believe there will be any easy regulatory solution to this, and parliament will need to rethink not just how it taxes, but what it taxes.
Another consequence of the networked firm is that more people will earn their living as contractors rather than employees. This will have wide-ranging consequences for superannuation, payroll tax, and so on. The tax and industrial relations system has traditionally struggled to integrate contractors into its frameworks, and this is likely to be a bigger issue in the future.
Blockchain applications make possible real-time reporting and payment of tax obligations. A large public company could place its accounts on a publicly verifiable blockchain. This would eliminate the need for auditing.
We are not proposing real time blockchain reporting as a regulatory requirement, but would urge shareholders in public companies to consider demanding this of management.
We can also see some attraction for small and medium sized firms of real time blockchain reporting, which would make automate tax compliance and make business activity statements redundant.
The ATO should develop guidelines for real-time taxpayer blockchain reporting that it would consider compliant. The ATO should also rethink its internal systems to facilitate voluntary real-time reporting.
Real-time tax reporting raises different issues for individual taxpayers. Privacy is an overriding problem here. There are new technologies that have been developed with the blockchain – such as zero-knowledge proofs – that provide opportunities for privacy-protecting public services in the future. This is a something we plan to work on in the future.
Blockchains are likely to bring about enormous changes to the way we work. For now, and to conclude, we will leave it that any use of new digital technology for government revenue raising has to place fundamental values such as privacy and the rule of law at the centre.
Unfortunately our time got cut short by a vote in the House. In the time we had there was some very good questioning from the committee members and I’m hopeful that Australia will be in the forefront of adoption of this new technology.