A Blockchain-based Value Added Tax (VAT) System: Saudi Arabia as a Use-Case

Abstract

Businesses need trust to confidently perform trade among each other. Centralized business models are the only mature solutions available to perform trades over the Internet. However, they have many problems which includes but are not limited to the fact that these create bottleneck on the server as well as requires trusted third parties. Recently, decentralized solutions have gained significant popularity and acceptance for future businesses. The wide acceptance of such systems is indeed due to the trust management among various untrusted business stakeholders. Many solutions have been proposed in this regard to provide decentralized infrastructure for various business models. A standard solution that is acceptable to the industry is still in demand. Hyperledger umbrella Blockchain projects, that are supported by IBM and many other industry big players are gaining popularity due to its efficient and pluggable design. In this study, the author present the idea of utilizing Blockchain to design a Value-Added Tax (VAT) system for Saudi Arabia's newly introduced tax system. The reason to select this business model for VAT is twofold. First, it provides an untampered distributed ledger, which cannot be deceived by any party. Each transaction in the system cannot go unnoticed by the smart contract. Secondly, it provides a transparent record, and updates all involved parties regarding each activity performed by stakeholders. The newly proposed system will provide a transparent database of VAT transactions according to our smart contract design and at each stage of supply chain, tax will be deducted and stored on peer-to-peer network via consensus process. The author believes that the proposed solution will have significant impact on VAT collection in the Kingdom of Saudi Arabia.

Blockchain technology in supply chain operations: Applications, challenges and research opportunities

“…This is critical to asset management for people in all places. Value added tax (VAT) : Blockchain based indirect tax systems can be created, which would record tax collections at each and every step of transaction, in the value chain bringing more transparency and validity to the entire tax structure ( Alkhodre et al, 2019 ). This helps avoid arguments and facilitates the calculations of VAT.…”

A Framework for Data Sharing between Healthcare Providers using Blockchain

“…Based on the search result regarding blockchain in KSA, there was only one result that discussed VAT in the financial system. In the mentioned study the author proposed a system containing a transparent database for VAT transactions to deduct the tax and store it on a peerto-peer network (Alkhodre et al, 2019). However, the proposed solution has not been implemented in the real world yet.…”

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