Government of Chile Initiates Tax Payment Management using Ethereum Blockchain

What humans see on computer screens are images. They are not data. These are images that resemble what is seen in the world. So we can treat them as if they were the things of the real world. One example is a soccer game. You can enjoy through the images on a television screen. Another example is a legally valid contract. This can be presented on the screen of one’s PC or cell phone, as an image very similar to a contract written on physical material such as a sheet of paper. On the screen, it looks almost the same as on paper. You can even sign it. However, from a technical perspective, it is not the same. What one sees on a screen is an image made of light.

It has presented a great challenge for Computing and Engineering, separately, to solve the thousands of problems involved in transforming things in the real world into images formed by light rendered by electronic devices. But there is another challenge that has required additional decades of study and experimentation: to create a world of digital data that can produce those light images and develop the possibility of saving that data in some kind of storage. All this seemed like a dream half a century ago. Now it is a reality. We’re going beyond that where the next step is quickly becoming a reality as well: store data in a public decentralized open ledger, a Blockchain.

Storing data that represents monetary value or assets in a Blockchain is already 10 years old. On January 3rd, Bitcoin’s Genesis Block, the oldest decentralized blockchain’s block that had been broadcasted to the world, turned 10 years old. One decade ago, humans launched a system that allowed data to be recorded on a non-governmental and non-centralized open ledger with the same level of validity that a certificate written by a Notary Public has: what the blockchain says is true and the value stored in it exists and is protected by the algorithms of the system. However, the question since the beginning has been: Where is this system? Where is the database that stores and protects this information? Well, it is nowhere. It is not in one specific location. And this is possible by being everywhere.

In the present, one can store money, information, contracts, valuable digital assets and all kinds of certificates for real world assets, among many other kinds of sensitive data in a blockchain. Millions of people around the globe are choosing decentralized data storage for their data, because nobody is in control of the blockchain and nobody can alter its data. The era of immutability has begun. Even Governments are beginning to enter this arena. One excellent example of this is Chile. Recently, the General Treasury of the Republic of Chile (GTRC) has put into operation a new platform for tax control on top of the Ethereum Network, one of the most highly valued blockchains in the world.

On December 19th, 2018, the government entity made the official announcement that, from now on, its main efforts will be focused on maintaining tax control through a platform that is non-governmental where immutability is the central rule. The objective of this new platform is to process the tax payments with the highest level of efficiency and transparency. The official announcement explains that a beta version of the platform is already in operation and the data that is confirmed on the blockchain will be recognized as legally binding by the Chilean institutions (official announcement available in Gobierno Digital de Chile: https://digital.gob.cl/noticias/la-tesoreria-general-de-la-republica-pone-en-marcha-proyecto-blockchain ).

The official announcement of Digital Government of Chile explains how the initiative started. “This technological project is proposed as a solution to the problem of concordance (coherence) that the GTRC presented between its suppliers (municipalities, institutions, etc.) and the means of payment (banks), which meant that, at the end of each month, the coherence of transactions is not completely accurate between these three entities, because of the information that was lost along the way. For example, when a citizen pays his contributions or a patent, that money goes from the bank to the municipality, in which case the GTRC is a mere observer of this flow of money. But, at the end of the month, they have to balance the boxes of the bank and the Treasury and the Municipality. And sometimes there are small discrepancies.”

As explained by the high authorities of the Chilean government, there is profound interest to start a new era of fiscal control powered by decentralized technologies. The GTRC is a subordinate department of the Ministry of Finance (MF). MF is looking forward with this big step. The initiative has been, at all times, part of the Digital Government of Chile and has had corresponding presidential support. It is explained that the vision is to use the platform to control all kinds of tax obligations, such as tax payments or patent payments.

The platform will be based on Smart Contracts and will be assessed as a public database that will be available to the public sector in Chile. This implies that the government, institutions or banks may resort to the information provided by the system and, as these are legally binding data, the different public entities may accept the data as valid, as well as the rights and obligations derived therefrom.

Chile joins a list of countries that are promoting initiatives based on the blockchain at the official level. The Chilean Parliament is also part of this trend while it is currently considering a bill on the adoption of the blockchain. The legislative project includes ideas for the energy sector and information security. Chile has even a strong academic line at the University of Chile that offers a Blockchain Diploma for computer experts.

The extraordinary advantages that the open and decentralized databases of blockchain represent for the relationship between citizens and governments are only just barely beginning to be discovered. So many citizens and public institutions are feeling that the potential is immense. For the time being, concrete projects such as Chile’s tax system, in the short term, allow for tangible social and economic developments such as reducing tax evasion by many contributors, transparency on the part of the public sector towards its citizens and, for the Latin American bureaucracy, reducing the hours of wait times due to long lines in public buildings to receive certificates. If some data is on the blockchain, then no paper certificates are needed for public procedures. Paper and time is saved. Public entities can trust the open ledger. This is a huge step for Chile, but also for all of humanity.

What do you think about the Chilean Government beginning to utilize blockchain?