Excise duty collection hasn’t changed much in its 100-year history. As the regulator lacks visibility over the creation, storage and movement of spirit, it must impose stringent administrative requirements to ensure compliance. Without trusted data the regulator needs strict rules to ensure dishonest businesses aren’t competing unfairly, in the process creating an administrative burden for honest operators.

The BEP generates this data via a real-time ledger, digitising and tracking the excisable commodity across production and distribution. Whilst the Pilot focused on alcohol, it is extensible to other excisable commodities (e.g. beer, fuel, tobacco, hydrogen), delivering significant benefits for regulators, industry and taxpayers.

The foundational infrastructure provides digital identities for a list of “Trusted Distillers” registered with the government, enabling digitization of verifiable certifications, licenses, and documents to further reduce administrative burden and paper.

At the date of this submission (Sep 2022) the pilot has been formally completed. The ATO and Spirits Industry bodies are supportive of an implementation, however this is contingent on new funding from the Federal Government. This will not occur until the May 2023 Budget (the October 2022 Budget is an out of cycle budget with the incoming Government focused on funding their pre-election commitments). Convergence.Tech are also in discussions with other jurisdictions about the applicability of the BEP for alcohol and tobacco.

Convergence.Tech primed the Pilot, funded by the Department of Industry. The ATO were the regulatory stakeholder involved in solution design and validation of use cases. The Spirits Industry bodies (ADA and Spirits and Cocktails Australia) provided access to producers for participation in the pilot. KPMG provided sector and excise advisory services. The BEP was integrated with ANZ Bank’s Australian Dollar Stablecoin. Mills Oakley provided legal and regulatory impact advice.

Excise Regulator (Revenue Agency) - increased assurance on excise liabilities being tracked and paid correctly, the solution provides granular level data on production, storage and distribution across the supply chain which provides greater visibility and insight. Ultimately it increases revenue and improves productivity of audit teams. Industry - streamlined excise administration, reduce counterfeit product and parallel importation risks and provide confidence excise obligations are accurate.

The expected benefits from a full roll-out were estimated by KPMG Australia, for government:

• Generate an additional $45m in tax revenue p.a. by reducing illicit activity
• Improve detection of non-compliance by access to granular commodity production and supply chain data
• Automate and reduce manual compliance activities to enable more efficient use of resources through data-driven insights and industry transparency

For industry

• Improved traceability enhances provenance, brand protection, and levels the competitive playing field by reducing the ability for bad actors to evade paying excise
• Removal & automation of compliance processes reduces red tape
• The digitisation of assets on the blockchain creates new revenue opportunities

Fiat currency stablecoin integration enables the movement of a commodity to trigger remittance of the excise duty liability to the regulator. Injecting financial liquidity to digital assets opens up new revenue streams and collateral for industry.

A major challenge was that Border Force (customs) withdrew from the Pilot at the commencement, this meant imports were taken out of scope, the focus therefore was on domestic production and distribution. The capacity of the ATO’s technology team was also a significant and enduring challenge, this has meant the window for implementation has moved to the second half of 2023 as opposed to a continuation in late 2022. This delay may risk the continuity of sponsors and key personnel involved in the pilot from the government agencies, industry bodies and Convergence.Tech.

The key to the success of the pilot was having buy-in and active engagement from senior Regulator and Industry stakeholders. The stakeholders provided access to subject matter experts who consulted with the pilot team to work through scenarios, challenges and potential solutions.

While this particular pilot focused on spirits, the capability can be extended and applied to other excisable commodities (such as beer, fuel, tobacco) and trackable inventories (including hydrogen or real estate), delivering significant benefits for regulators, industry and taxpayers.

Reducing red tape, improving the efficiency of regulation, opening up new revenue streams, and protecting brand integrity are key benefits of the Blockchain Excise Platform but it’s all in service of a larger goal - fairness for distillers, wholesalers and consumers alike.

“By making sure there is compliance it means we won’t have rogue operators, creating a level playing field for everyone,” says Paul McLeay, CEO of The Australian Distillers Association. “And that’s probably the most exciting thing – the transparency and dynamism of the technology."

The Discovery Phase was critical to understanding the key priorities and current constraints for the regulator and individual producers. Taking a human-centric design to the solution by engaging with subject matter experts meant the BEP was designed to benefit both the regulator and industry. Involvement of government technologists would have been beneficial during the pilot as this may have mitigated/avoided the capacity delay now encountered. The grant funding, whilst welcomed, did not provide an “on-ramp” for continuation to an implementation phase, meaning momentum and continuity of key sponsors and development resources is at risk of not being available for delivery (due to the gap of approx. 12 months between end of pilot and potential start of implementation due to new funding vehicles and processes being identified and completed).

A national blockchain could be interlinked with those of other countries, creating a global network of Trusted Distiller benefits, underpinned by rich data for regulators to lower the costs and administrative burden of exports and imports. In summary, it’s about fairness. For too long bad actors have competed unfairly by exploiting the gaps in compliance monitoring. By helping to close these gaps, a blockchain-powered solution levels the playing field, ensuring a fairer world for producers, wholesalers and consumers alike.