Blockchain Technology in Taxation: A Transformative Framework

Tax gaps and high administrative costs pose persistent challenges for governments worldwide, resulting in significant revenue losses and inefficiencies. In 2022, the United States alone lost an estimated USD 606 billion due to underreporting, fraudulent claims, and non-compliance, reflecting a broader global issue potentially exceeding USD 4 trillion. Traditional tax systems often struggle with underreporting of sales, fraudulent refund claims, underpayment of taxes, and non-filing of returns, while administrative processes such as registration, recordkeeping, assessment, audits, and collection remain labor-intensive and costly. Blockchain technology, with its core characteristics of decentralization, transparency, immutability, and real-time verification, offers a transformative solution to these problems. When integrated with Artificial intelligence (AI), blockchain enables intelligent data classification, predictive analytics, and autonomous tax assessment, creating a self-checking tax ecosystem. This paper explores the potential of blockchain in modernizing tax administration, from simple real-time data sharing to advanced implementations incorporating smart contracts, automated payments, and AI in modernizing tax administration. It also examines the benefits toboth tax authorities and taxpayers, including reduced compliance costs, improved audit efficiency, enhanced fraud detection, and automated reporting and collection. The study further discusses implementation requirements, challenges, global adoption examples, and prospects, highlighting how blockchain can enable a more efficient, transparent, and trustworthy tax system in both domestic and cross-border contexts.