Entry of Blockchain in e-governance

Authored by Sanat Bhat and Yash Matlani, Partners of BlockBasket Advisors LLP firm
Authored by Sanat Bhat and Yash Matlani, Partners of BlockBasket Advisors LLP firm

The governments can consider experimenting blockchain on multiple governance issues. While experimentation is necessary, for a solution to emerge, it is important to select the right use cases, which are identified primarily where there are multiple parties having low level of trust, transact with each other. Further, such use cases must also have time sensitivity of data, cost of reconciliation, need for security and authentication as important elements

In the last few years “governance” as a concept has taken a Darwin’s route of evolution with transparency and trust at its helm. The trust and transparency are a matter of position not only for the communication between government and people of the nation but also between the governments of the nations. It was being contemplated since long as to how the above attributes of transparency and trust be inculcated and developed such that it can bear results for the world at large. Eventually, world started looking at technology as the one who could be the pilot of the journey ?

We think that technology has proved to be a great pilot, which can answer the above mentioned question.  The destination or solution lies in the blockchain technology. To open with what blockchain primarily is – it simply is a check register which collects key information about transactions and records them in a journal (or ledger) as a running list. In blockchain, each check — each transaction — is a link, and each link is connected to the previous link, forming a chain. This digital check register is stored in the cloud and multiple copies of the register are saved all over the world. Combined, all these features lead us to the technical definition of blockchain: “a distributed database.” Any person participating in the blockchain can review the entries in it but can update the blockchain only by the consensus of a majority of the participants.  Further, such data reviewed as well as updated / modified shall be time stamped.  The data security, consensus test and time stamp altogether depict that transparency and trust as the fundamental basis of the entire system, thus making the technology a natural solution for governance. Though the records maintained on a blockchain are distributed all over the world across different nodes, yet restricted access can be provided to each node in the network on the basis of authority. This would ensure privacy of the data.

Apart from transparency and trust, speed has emerged to be an important element for governance in the recent times. Blockchain by way of “smart contract” – contracts codified for the automatic execution on fulfillment of certain conditions along with the other attributes of blockchain makes possible achieving the process speedily.

The following diagrams display the difference in the current system and blockchain system

Current System
Blockchain System

Intermediaries and independent record keeping are required to facilitate transfer of access and create trust.

Susceptible to hacking or misuse as a single source of truth is maintained across the ecosystem

The governments can consider experimenting blockchain on multiple governance issues. While experimentation is necessary, for a solution to emerge, it is important to select the right use cases, which are identified primarily where there are multiple parties having low level of trust, transact with each other. Further, such use cases must also have time sensitivity of data, cost of reconciliation, need for security and authentication as important elements. Selected use cases are mentioned below.

Land registrations:

Governments across globe are exploring blockchain usage in land registration. Currently in India, land registration details are validated and maintained manually in paper-based format across various departments within the local Municipal Corporations, Registrars, Tehsildar’s office, Gram Panchayats etc; this leads to high degree of latency and inaccuracy of information. Such latency of information depicts absence of any land records systems at place, creating “ownership” issues in the country. To add to the already abhorrent situation, multi-layered intermediaries make the entire system opaque bringing in a huge litigation saga running for multiple years. The ripple effect goes on to make transfer of property and the stamp duty collections more complicated. The loss of revenue for the government further continues with no appropriate time stamped ledger for collection of property taxes.

Blockchain can prove to be avant-garde for the land registrations and record maintenance considering its current impediments.

Blockchain shall knock off initially the problem of intermediaries, resulting into a seamless and real time flow of data between departments. With respect to the accuracy of data, updation of records only with majority consensus and its time stamping will solve the problem. Performing like a complete package blockchain can solve the land registration and data maintenance issue end to end. In India, states of Andhra Pradesh and Telangana are working on pilots to move land records and registration on blockchain.

Land Registrations

Tax data exchange:

In taxonomy, the basis of collection of taxes is the information about the taxpayers and their merchandise, for which government interaction is imperative. Today the law has prescribed exchange of information between various revenue departments, for example, the data maintained with the Goods and Service tax (GST) department is shared with the Income-tax (IT) department which helps the IT department to verify whether the correct amount of turnover has been brought to tax; however, there exists slack in the accuracy of the data and the velocity of its exchange creating impediments for efficient collection of taxes with minimum litigations. As a solution for the aforementioned slack, the receiver department undertakes “reconciliation” of the data exchanged by other departments to avoid the any loss. One can imagine the time and cost that may get involved when there are multiple checks at different intervals in different departments.

How blockchain can perform as medicament for the above problem?

A aggregation of identification of person by way an unique identity number (say Aadhaar), and all his records required for determination and collection of taxes, fees, charges at different departments and levels shall be maintained on a distributed ledger using blockchain. The copies of such ledger shall be held by all the departments; an update of such record by one department shall instantaneously flow to all other departments by way of smart contract. The time stamping of the record by blockchain shall ensure the transparency of the data maintained, bringing in a huge efficiency for government and people at large.

Domestic tax management:

Blockchain has the potential to modernize accounting and tax payments. In this context, however, for the benefits of the technology to effectuate, considerable networking efforts shall be required at the time of implementation. One of the best possible use cases that we think are with respect to transactional taxes like Goods and Services Tax (GST) or in the cases such as taxes deducted at source (TDS); transactions recorded under a complete blockchain ecosystem with government as party of such ecosystem may lead to automatic collection of taxes, and charges by maneuvering the concept of smart contracts between people and government. This may result into bringing least burden of tax deductions, collections and deposits on people, automatically making the entire process hassle free.

Several other benefits can as well be thought upon such as application of Distributed Ledger Technology (DLT) for real-time compliance, reduction of the transaction costs and elimination of risk of tax evasion.

International tax and law management:

With an extremely intertwined web of transactions that now India as a nation has with other nations, it becomes important that the mechanism for collection of rightful share of India’s taxes with respect to the income earned by multinationals from Indian soil be firmly determined. “Information” about the multinationals and other non-residents with Indian government on different aspects becomes necessary for making possible collection of the rightful share and stopping any tax evasions. For this very purpose automatic information exchange agreements have been entered by India with various nations. Under the agreement, for e.g., Singapore has to report India about the incomes earned by Indian residents in Singapore and income earned by Singapore residents from India. Currently, the exchange of information involves diverse process, collection of information at lower levels from people – collation in a particular format – updating the data as per the previous existing data – identification of any tax evasions – Reconciliation by the competent authority’s team – sharing it with the Ministry of Finance, and reconciliation at this level –finally sharing the data with the treaty countries. The steps may further increase by way of litigation with people in case of discrepancies. Though automatic in text, in practice the exchange of information requires a considerable period of time.

A blockchain model between the nations by way of a distributed ledger having all the relevant tax details can be maintained, the same shall facilitate if not real time but extremely speedy data exchange of information.  Further, the litigation proceedings in two nations against a single entity may go hand in hand from timing perspective, reducing the litigation cost at a great extent.

Let’s bid from blockchain:

Bidding as a process exists right from making available access to natural resources of the country, road assets, infrastructure and for the purposes of divestment from the public-sector undertakings.  Bidding process involves multiple parties with various government departments at the center interacting with each other.  Every participant of the bid desires a fair bidding process at the plinth level, with transparent selection mechanism.  The bidding process have failed to deliver the transparency and trust in the recent past which has led to cancellation of licenses already issued and a re-bidding process undertaken.  This wasted a lot of time and energy. Currently government has revamped the bidding system to be online; the government has launched multiple checkpoints as well for a transparent bidding process, however, the same has led to high time and costs being incurred.

Blockchain can be a game changer in the bidding process.  The entire bidding process can be covered by way of blockchain in manner mentioned in the below diagram

The above entire process and data displayed to the bidders can increase enormous trust and confidence in the system at whole, plus also the speed of the system shall be better than the current.

Bidding via Blockchain

Let’s vote from blockchain:

The less complex but equally valued transaction of casting a vote is in focus of New York, Texas, Denmark, Estonia, Ukraine, South Korea, and Australia. In India, Electronic Voting Machines (EVM’s), and its vulnerability is a risk for democracy. So, the primary issue lies here is the security of the data and transparency of the process.

How can I vote on blockchain?

Let’s say each voter is given a key as his vote.  The key shall be connected with a smart contract, which shall open on the Election Day. The voter will assign his key to the relevant party and the vote shall be recorded as a transaction on the “publicly” available ledger.  The data being time stamped and verified incessantly would bring down the level of any discrepancies to zero.

Given blockchain technology’s broad applicability and transformative potential, policy makers may find it worthwhile to explore the range of possibilities available within their respective departments. A blockchain based approach could increase efficiency of transaction processing and reduce, if not entirely prevent, fraud. However, to unlock the full potential of this technology, the government will need to work as a facilitator, by providing an enabling environment to interested players. There is also a need to develop trust within the ecosystem as a whole about the technology and its applications. We firmly believe that Prime Minister Narendra Modi’s Dream of a Digital India is moving towards its goal at a really quick pace, and hence the adoption of blockchain would form if not the center point but surely an important aspect. The same has also been reverberated recently in the Budget 2018 speech, by our Hon’ble Finance Minister Arun Jaitley with government’s intent on exploring use of blockchain technology proactively. It is increasingly likely that government will have much microscopic view on use cases and head towards the successful implementation in e-governance.

Authored by Sanat Bhat and Yash Matlani, Partners of BlockBasket Advisors LLP firm