Georgia plans to introduce blockchain into the fiscal system

Governments of many countries, and especially Georgia, note the potential of blockchain technology in tax systems. The Prime Minister's initiative to integrate technology should increase awareness about it and also bring a lot of benefits to the country.

In addition to the fact that this initiative will change the way Georgian citizens think about how to pay taxes, submit and store information, it will become a real stress test of the entire tax system of the state.

The introduction of new digital technologies into business leads to the emergence of new forms of their control. New trends are forcing fiscal services to pay attention to the flow of global financial flows into digital.  Tax regulations governing traditional business are not adapted to electronic and digital versions, because part of the financial flow is not controllable.

Georgian fiscal services are trying to master and apply blockchain for their needs. After all, moving to an open registry will help them better control everything. 

Currently, system participants: the banking system, fiscal authorities, market participants - individual entrepreneurs and legal entities - act separately, that is, there is no unified system in which control over all payments made between tax payers and the state is carried out, as well as automatic calculation of taxes according to the submitted data. Such a system will not only make it possible to transparently carry out calculations, but also organize a quick write-off of amounts, thereby facilitating business activities. All transactions are visible in real time, simplifying the relationship between counterparties, tax payers and the state.

There are many options for how to implement this: from automated tax collection using smart contracts to improving risk analysis and ensuring tax control. Including transfer pricing. Blockchain could be significant in uncovering VAT fraud schemes. This is possible thanks to two qualitative characteristics of the technology - the absence of intermediaries and open reporting. 

The introduction of blockchain technology into the fiscal system will require the joint efforts of Georgian government databases and network systems.

The use of blockchain in tax services also poses certain challenges. The first challenge relates to ensuring stability and unification of tax administration during technological improvements.. The second is the constant improvement of the technical and personnel support of tax departments. 

There are also legal challenges. For example, how to correctly integrate smart contracts into the legal framework?

How will tax regulations apply to them? 

If counterparties use digital currency, how to determine the taxable value? 

There are still more questions than answers. But we believe that Georgia will cope with these tasks and will become an example for other post-Soviet countries in terms of establishing relations between fiscal officials and businesses based on innovative technologies.

Blockchain, which has created a buzz around the world, and especially in the banking and financial sectors, in the long term may become a key technology in tax systems. The technology provides transaction transparency and traceability, control, security, and real-time information. In addition, it will help reduce operating costs for legal entities, entrepreneurs and governments.