Aim/Background:
Ensuring VAT compliance remains a critical challenge due to inefficiencies, fraudulent invoicing, and revenue losses in traditional tax administration systems. Existing solutions lack transparency, automation, and real-time enforcement, leading to tax evasion and compliance gaps. This study proposes a blockchain-based VAT compliance framework using Hyperledger Fabric, incorporating smart contracts to automate invoice authentication and VAT-tokenization for secure, transparent, and fraud-resistant tax administration.
Methods:
The proposed framework leverages Hyperledger Fabric’s permissioned blockchain architecture, utilizing smart contracts (chaincode) to enforce VAT regulations, validate invoices, and facilitate real-time VAT remittance through a VAT-token mechanism. Performance evaluation was conducted using Hyperledger Caliper, simulating 10,000 transactions under varying loads to measure transaction throughput, latency, scalability, and fraud detection effectiveness.
Results:
The system demonstrated high processing efficiency, achieving a transaction throughput exceeding 1200 TPS, significantly improving VAT processing speed. Latency was reduced to less than 1.2 seconds, ensuring real-time tax remittance. The framework remained stable under high transaction loads, confirming its scalability and reliability for large-scale tax enforcement. Additionally, smart contracts successfully automated fraud detection, reducing the risk of invoice manipulation and tax evasion.
Conclusion:
The findings highlight blockchain technology’s potential to modernize VAT compliance, offering a scalable, secure, and transparent solution for tax enforcement. While the system effectively enhances fraud prevention and automation, regulatory integration remains a key consideration. Future work will focus on pilot testing in collaboration with tax authorities, integrating the framework with existing tax infrastructures, and enhancing VAT-tokenization mechanisms for multi-jurisdictional tax compliance.
Key words: Blockchain, Smart Contracts, VAT Compliance, Invoice Authentication, Hyperledger Fabric, Tokenization, Tax Administration, E-Invoicing.
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