Blockchain set to combat tax fraud

A world-first Australian pilot using blockchain technology to claw back lost excise revenue could soon be rolled out on a broader scale.

More than $580m of potential excise taxes, such as for distilled liquor, are going unpaid each year, according to the ATO.

A world-first Australian pilot using blockchain technology to claw back lost excise revenue could be rolled out on a broader scale from the end of 2022, boosting government coffers as the tax office looks to crack down on illicit activity.

The national blockchain pilot saw the Federal Government hand technology firm Convergence.Tech $2.6m in 2021 to identify the benefits of blockchain to the broader Australian economy.

Using the drinks industry, which sees $582m of potential excise taxes go unpaid each year, Convergence.Tech developed a blockchain-based reporting system to keep track of distilled spirits to ensure businesses complied with their tax obligations.

“We were tasked with finding the opportunities in the spirit sector around productivity and tax gains for both the regulator and the industry itself,” Convergence.Tech general manager for Australia, Doug Campbell, said.

“What we’ve done in the pilot is connect the distillers’ operational systems onto a blockchain that the ATO then has access to on the other side.”

While working with only a handful of distillers for the pilot, Mr Campbell said the goal was to get all 400 Australian distillers onto the voluntary program.

“If they’re all on the blockchain, they can see only their data but they share with the ATO their operational data of how that alcohol is made, when it’s made, and how it moves through different containers and into the supply chain,” Mr Campbell said.

According to KPMG analysis, the program has the potential to recover at least $45m annually in lost tax revenue.

Following the successful pilot, Convergence.Tech, which owns the intellectual property of the platform, aims to start rolling out the program this side of Christmas and is “exploring commercialisation opportunities”.

“We see this as a huge opportunity and we’re looking to partner with major financial insti­tutions as commercial backers of the platform,” Mr Campbell said.

The Canadian company, which opened an Australian office to roll out the pilot, is also looking to license the program, expand its capability and put it into production in the local market. It was also in discussions with governments in Canada and Britain, Mr Campbell said.

Convergence.Tech also integrated ANZ’s Australian dollar stablecoin (A$DC) into the platform in the pilot, allowing for the potential for straight-through payments and processing between the regulator and individual distillers on the blockchain.

ANZ last week executed the first Australian-bank-issued Aussie dollar stablecoin payment.

Hailing the benefits of the tracking platform to both the industry and regulator, Mr Campbell said a broader rollout would see consumers do their part simply by scanning the barcode on a drinks bottle.

“You’re almost crowdsourcing compliance. When a consumer scans a barcode because they’re interested in the provenance or the pairing suggestions with that product, we can also start informing them and the retailer of the excise status. It’s educating the consumers and the retailers to actually look for that excise status.

“And naturally, the platform we’ve designed isn’t just for spirits. It’s extensible to fuel, hydrogen … any good that has a value attached to it and has a complex supply chain overseen by a regulator.”