Request at .tax Blockchain Hackathon
From the 5th to 7th of April, we attended the .tax blockchain hackathon in Latvia to solve the problem of VAT fraud at a countrywide level. We were invited by the Latvian Ministry of Economics to participate, applying our technology to help reduce the grey economy while increasing the efficiency of tax collection.
The weekend was an opportunity to connect with industry experts from the Latvian Central Bank and State Revenue Services, gather market insights and of course, hack.
We’re pleased to announce that on Sunday, we took home the prize in the best pitch category.
What we built
We created a solution that allows tax authorities to collect transaction data directly from the customer at the time of a transaction. This data gets stored on the Latvian government’s database and is backed up on the blockchain as proof of the transaction to ensure data integrity. This accomplishes 3 things:
- It eliminates the opportunity for business owners to manipulate their reported earnings from their cash registers by bypassing them at the time of payment.
- It allows us to batch transactions before putting them on-chain to maintain an extremely high throughput — something of key importance to a country that has 1.2 billion transactions per year.
- It allows the Latvian government to see the macro statistics of their economy in real-time and have an immutable ledger to compare against reported taxes, ensuring protection against misreported revenue.
Actors in the schema above:
- The merchant using his Point-Of-Sale (POS)
- The customer using his smartphone
- Latvia’s tax authorities system
Step by step schema explanation:
- The customer scans the QR code displayed on merchants POS with her/his phone, reading the signed request.
- After choosing her/his payment method and performing the payment, the customer sends the completed request to the SRS API.
- When triggered by step 2, the SRS API sends a copy of the completed request to a local database owned by the SRS, making fulfilled payment requests instantly available to analyze.
- Simultaneously, the fulfilled payment request is sent to the Request network by the SRS API to broadcast to the blockchain.
- After batching multiple fulfilled payment requests, the Request network broadcast all requests at once to the blockchain, increasing throughput and saving blockchain broadcast costs.
- Once the request(s) are confirmed to be stored on the blockchain, the SRS API updates the local database with a transaction hash link (Etherscan) to trace back to the immutable record.
How does the process designed by Request combat tax fraud?
In the process shown above, the customer acts as a verification layer, confirming that the amount was correct before paying and broadcasting the transaction themselves directly to the Latvian tax authorities.
It eliminates the possibility of the merchant changing the numbers and underreporting their revenue to avoid taxes. The solution adds value to the three actors involved:
Governments have access to transaction data that is verifiably immutable, and eliminate the opportunity for business to misreport earnings and evade tax.
Merchants automatically declare all of their sales, increasing the ease and accuracy of their tax reporting.
Customers have access to immutable digital receipts, stored in a single place. This reduces both environmental externalities (less paper usage) and improves efficiency (no waiting for a receipt to print, a receipt is always available for product warranties or refunds).
A typical challenge with the before-mentioned scenario is the need to impose gas fees onto the customer to be able to broadcast the transaction. To mitigate this issue, the Latvian government can run a Request Node, fully subsidizing the gas costs and Request fees of customers posting to the blockchain
Overall, the weekend was a good showcase that Request technology is valuable at a country level to reduce tax fraud, increase budget transparency and make financial flows more efficient for all stakeholders.
Thank you to all of the teams who competed with us, and a special shout out to the Latvian Ministry of Economics for inviting us to compete in the hackathon + Startup Wiseguys for organizing the event.