Bahrain: Blockchain Technology For Managing (Safe) VAT

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The introduction of value-added tax (VAT) in Bahrain next year is an excellent opportunity to build a unique and optimised taxation system and blockchain technology will be a safe and effective tool for its management, said an IT industry expert.

Blockchain speeds up government access to tax revenues from the final consumer of the service or Item, and also accelerate the process of refunding the merchant and supplier of the tax, stated Yaqoob AlAwadhi, the chief executive of NGN International, a full-fledged systems integrator and IT consultant based in Bahrain.

“This technology would contribute to reducing the costs of managing the VAT and accelerate its collection by 80 per cent,” he added.

“There are estimates that this tax will help boost state budget by BD300 million ($793 million) per year, thus contributing 1.6 per cent of GDP. However no one wants the cost of collecting this tax to be greater than its revenues through the hiring of more staff and spending on consulting firms, or through deliberate or unintentional tax evasion,” stated Al Awadhi.

According to him, the blockchain technology has been expanding its influence over the last few years, and Bahrain has an opportunity to be a pioneer in the GCC of by using this technology in the collection of VAT.

Blockchain’s key strength, he stated, was its secure and transparent nature. “Anyone interested can see a chain of blocks with transaction details but changing, adding, or removing of any block is not possible,” he added.

Unlike electronic tax invoices, which are entered into a database and can be exposed to third-party interference, blockchain is free from such vulnerabilities. The system can track VAT-related financial flows and monitor the fulfilment of taxpayers’ obligations in real time, with no chance for fraudsters to conceal any transaction or get an illegal VAT refund or offset.

In addition, the Ministry of Finance is going to establish a single business account for each company to be also used for tax and customs payments, that will enable the government to monitor enterprise activities and get information about expenses, profits, and budgets.

In this scheme, blockchain nodes will be located in banks and government agencies. These bank nodes will keep a limited amount of information that is not enough to identify transaction details, while the nodes kept by government agencies will get transaction details in full.

“Yet there are other benefits,” stated the top IT consultant. “Blockchain is quick (mind digital transformation hype) and can cut VAT administration costs by eliminating the need for third-party intermediaries: agents, escrow, trusted banks, and many others that slow down the entire transaction process,” he explained.

“Blockchain can do the job in minimum time and without contractors. Compared to any digitalization initiative, blockchain prevails thanks to its highly secure transactions,” he added.

Source Credit: Trade Arabia


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