Filling the Tax Gap via Programmable Money
This addresses tax evasion for governments and citizens, but it is incremental as it builds on existing programmable money concepts.
The paper tackles the problem of tax auditing using programmable money by proposing two mechanisms that enable authorities to verify declared returns and deter tax evasion, both ensuring high privacy with minimal information leakage beyond the underlying ledger.
We discuss the problem of facilitating tax auditing assuming "programmable money", i.e., digital monetary instruments that are managed by an underlying distributed ledger. We explore how a taxation authority can verify the declared returns of its citizens and create a counter-incentive to tax evasion by two distinct mechanisms. First, we describe a design which enables auditing it as a built-in feature with minimal changes on the underlying ledger's consensus protocol. Second, we offer an application-layer extension, which requires no modification in the underlying ledger's design. Both solutions provide a high level of privacy, ensuring that, apart from specific limited data given to the taxation authority, no additional information - beyond the information already published on the underlying ledger - is leaked.