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A New Blockchain-Based Value-Added Tax SystemThe 11th International Conference on Provable Security

Dimaz Ankaa WijayaOctober 2017

Authors• Dimaz Ankaa Wijaya (Monash University, Data61, Australia)

• Joseph Liu (Monash University, Australia)

• Dony Ariadi Suwarsono (Directorate General of Taxes, Indonesia)

• Peng Zhang (Shenzen University, China)

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Content• Introduction

• Blockchain

• Value-Added Tax and The Problems

• Aims

• Proposed Solution

• Security Evaluation

• Conclusion and Future Works

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Introduction

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Basic Idea

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Source: pwc.co.uk

Blockchain• First implemented in Bitcoin (A peer-to-peer electronic cash

system)

• Decentralised database system

• Kept in multiple interconnected nodes (servers)

• Data is kept in chained blocks

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Source: Wikipedia.org

• Tax of added value (price increase) of goods or services

• Indirect tax, accumulated along the chain of business• Paid by the end users

• The Taxable Person for VAT Purpose (TPVP) creates tax invoices

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Value-Added Tax (VAT)Introduction

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Source: oracle.com

• Fraudulent tax invoice to minimise the VAT paid to the gov’t.

• No standard codification system for goods and services

• Complicated tax return

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Value-Added Tax (VAT)Problems

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Source: Wikipedia.org

• PricewaterhouseCooper• “The technology could reduce VAT Fraud”

• Richard T Ainsworth• “Blockchain for VAT can reduce revenue loss 50-60B Euro per year in EU”

• No protocol implementing the concept so far

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Value-Added Tax (VAT)Blockchain System

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Research Questions• How to implement blockchain-based system in taxation to mitigate

the tax invoice fraud• How to identify taxpayers in the blockchain system

• How to transfer tax credits

• How to create tax invoices in the system

• How to simplify the VAT tax return

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Proposed Solution: Pajakoin

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• Token called “PAKO” is used in Pajakoin

• Pay to Script Hash (P2SH) Address• A scripting method in Bitcoin environment

• Relative Lock Time (RLT) OP_CHECKSEQUENCEVALUE (CSV)• Locks the fund in a predetermined time period

• Multisignature• Requires multiple participants (multiple private keys) to sign

• Data-embedding scheme in transaction data (Wijaya, 2016)

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PreliminariesTechnical Side

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The System

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The TPVP Identity• Utilising P2SH scheme (script and address)

• Pubkey 1 owned by the TPVP, Pubkey 2 by DGT

• CSV Value: 90 days

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Transferring PAKO• PAKO transfer to:

• Other TPVPs (tax credits)

• Non-TPVPs, registered taxpayers (non-transferrable any further)

• Coin-eater (non-taxpayers, non-transferrable any further)

• Banks (refund to local currency)

• Requires approval from DGT (in a multisignature scheme)

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Tax Invoice

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• The standard Harmonized System (HS) is used

• JSON data format

VAT Periodic Tax Return• Sent to a special address generated by DGT for each TPVP

• JSON data format

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Security Evaluation

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Cheating Models• A dishonest taxpayer tries to create PAKO

• A dishonest bank tries to embed new blocks

• A dishonest bank tries to modify PAKO sales report

• Assumptions:• DGT always honest

• The blockchain is negligible to modify

Presentation title | Presenter name19 |

Cheating Models Evaluation• Under a centralised, Bitcoin-like system, the probability of the

dishonest user trying to create PAKO is negligible

• The bank cannot create a new block in the centralised blockchain

• Sales report modification will be identified when audited

Presentation title | Presenter name20 |

Conclusion and Future Works

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Conclusion• Pajakoin

• Private blockchain

• Design simplicity over anonymity (address reuse, transparent data)

• Ensures no VAT due, banks keep the tax money

• Increases the VAT monitoring participation of taxpayers

• Integrates the money and the reports

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Future Works• Employ smart-contract system to map VAT regulations

• Reduce DGT’s involvement in the transactions

• Investigate the impact of paying VAT in advance towards the cashflow of the taxpayers

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