Making Tax Smart: Feasibility of Distributed Ledger Technology for building tax compliance functionality to Central Bank Digital Currency
Panos Louvieris, Georgios Ioannou, Gareth White
TL;DR
The paper investigates making tax compliance part of a Central Bank Digital Currency (CBDC) by leveraging distributed ledger technology. It proposes Smart Money as an overlay CBDC architecture implemented as a prototype (Making Tax Smart, MTS) on the R3 Corda platform to enable real-time VAT split payments and controlled data access via smart warrants. Through feasibility and scalability experiments, the study demonstrates that VAT split payments and governance features (oversight, Smart Warrants, programmable money) are achievable without disrupting existing payment rails, and that the system scales under realistic workloads. The work highlights money as a sensor and policy actuator—transforming monetary flows into actionable government intelligence and policy tools, with broad implications for taxation, Open Banking-like data sharing, and public welfare programs.
Abstract
The latest advancements in Distributed Ledger Technology (DLT), and payment architectures such as the UK's New Payments Architecture, present opportunities for leveraging the hidden informational value and intelligence within payments. In this paper, we present Smart Money, an infrastructure capability for a Central Bank Digital Currency (CBDC) which enables real-time Value Added Tax split payments, oversight, controlled access and smart policy implementation. This capability is implemented as a prototype, called Making Tax Smart (MTS), which is based on the open source R3 Corda framework. The results presented herein confirm that it is feasible to build a MTS capability which is scalable and co-exists with the current payment systems. Smart Money CBDC has the potential to mobilise payments data in order to transform the role of money from a blunt instrument to a government policy sensor and actuator without disrupting the existing money system. DLT, smart contracts and programmable money have a crucial role to play with benefits for government departments, the economy and society as a whole.