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The conventional systems used by regulators for taxation are centralized and prone to corruptibility. Blockchain based systems have benefits like immutability of transactions, permissioned ledger to address confidentiality and privacy. Smart contracts can enable automation, trust, transparency and increased collaboration.

Inter-organizational transparency & process efficiency needs to be built across the taxation ecosystem to reduce the cost of tax compliance, curb revenue leakages and reduce exploitation of tax exemptions. To transform the broader tax ecosystem and not just internal processes, a need was felt to create a trust-based institutional collaborative platform for multiple entities to share data securely and concurrently in real-time by leveraging blockchain technology.

Key Challenges

  • Absence of real-time reconciliation among banks
  • Manual tracking leading to incorrect utilization of rebates
  • Validation of high volume of income statements in a centralized system
  • Tracking mortgage and minimizing frauds

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The Solution

Digital, trusted and seamless experience for citizens provided by the taxation authorities

Use cases that automate compliance:

  • Use case 1: Reconciliation of tax deduction waiver applications: Tax payers submit same forms to avail tax deduction waiver at multiple financial institutions leading to tax pilferage (over utilization of permitted limits of exemption) due to absence of real time reconciliation amongst institutions. Blockchain smart contract ensures availability of consolidated summary of an individual across Financial Institutions. Real time validation of tax waiver application against consolidated position is performed using rule based automation.
  • Use case 2: Validation of certificates issued by taxation authority: Tax payers submit certificates issued by taxation authorities to deductions, who deducts tax as specified by the certificates. However, these certificates can be modified or cancelled any time after issuance. Unavailability of real-time consumption details and status of these certificate leads to multiple non-compliance issues and over utilization of rebate. Blockchain will provide a single view of certificates available to the assessing officer and the deductions, thereby eliminating discrepancies and over utilization and tax leakages.

Use cases that assist in lending business:

  • Use case 3: Authentication of Tax return / credit proofs: Tax payers submit tax return / credit statements to the financial institutions (FI) while applying for loan. FIs are unable to establish authenticity of the report submitted to them. Smart Contract authenticates these reports by comparing cryptographically generated hashes, thus, helping FIs to validate borrower credit worthiness to minimize bad loans.
  • Use Case 4: Reconciliation of tax dues against Mortgages: Tax payer can approach taxation authorities to procure No Objection Certificate (NOC) which is required to avail loan against mortgage of a property. Similarly banks update information on properties under mortgage to enable taxation authorities to attach such properties in case of outstanding tax demands and dues. But currently the banks and tax authority systems are not integrated, resulting in improper monitoring of these rules. Blockchain provides a single view of NOC available to taxation authority and FIs to eliminate discrepancy.

Integrated blockchain solution with a long-term vision for banks and income taxation authority

  • Identification of the most appropriate use cases for a blockchain based solution for taxation
  • Quick implementation of the pilot, providing the banks with a sandbox to test the user journeys
  • Leveraging the relationships with banks and financial institutions to get them on-boarded on the network
  • Reduced tax avoidance, faster resolution of queries (using self-service), lower cost of regulating
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Benefits

Rethinking trust in tax compliance

The banks systems will be able to collaborate with income tax systems using the blockchain network seamlessly, without any impact on current workflows or processes and without compromising on security and privacy.

Seamless, secure collaboration between banks and income tax systems, no negative impact on current workflows

Taxation authorities will be able to track the income information and assets information in near real-time. They will be able to monitor the usage of rebates provided to tax payers through tax deductions.

Near real time tracking of income information and assets. Accurate monitoring of the usage of rebates provided to tax payers

Banks will feel confident while lending since income related information provided by tax payers is authenticated over the network by the authorities instantly.

Instant authentication of information provided by tax payers making banks more confident

Online approval will be procured from Taxation Authorities when properties of corporates are being mortgaged by Banks.

Procurement of online approval of taxation authorities when properties of corporates are mortgaged by banks