Oh, please… tax breaks for blockchain companies?

The news item from last week about the Spanish government contemplating tax breaks for companies using blockchain technology is frustrating. It buys into the hype, assuming the blockchain = the future, blockchain = good, blockchain = progress. What it will end up doing is encouraging businesses to throw a lot of money at blockchains they don’t need. Technology investment is increasingly the backbone of any company’s expenditure, and if a business gets that wrong… if, for instance, it implements a blockchain that then can’t scale or can’t protect the information or – gasp – ends up breaking any one of the multiple privacy, custodian and financial laws… It would make sense to also exempt companies using blockchain technology from the country’s bankruptcy laws.

Only, no, it wouldn’t. That would just provide a further incentive for businesses to add “blockchain” onto their IT specs. Even more vapid hype.

source: Giphy
source: Giphy

A more useful solution would be a “sandbox”, in which businesses that work in regulated sectors (finance, health, education, etc.) can experiment with the technology’s advantages without needing to comply with a long list of restrictions that were drawn up 25 years ago. A sandbox would encourage cautious investigation while not endangering systemic processes – and while there is always the risk that sandbox privileges will be withdrawn, it’s more likely that rules will be adapted once consequences have been examined. And, most important, the consumer would broadly be protected.

Not under the proposed Spanish system. Never mind the consumer, let’s get businesses using this technology that is still new and relatively untested, because hey, tax breaks.

What’s more, given how “easy” it is these days to issue digital tokens through initial coin sales, we could see traditional companies choosing this option – even if the token makes no economic sense – because it could help them pass as a “blockchain company”. This will add fragility to the system as hopeful investors put money in these tokens.

And, how can you offer tax breaks for potentially unregulated use cases? Sure, the government could decide which use cases get the tax breaks. But that is akin to deciding how to regulate the use of the technology – something that no government has wanted to touch with a bargepole. Not yet, anyway.

It should be a boon for blockchain consultants, though. They’ll be raking it in.

How about offering tax rebates to businesses investing in any type of technology? Why is the government favouring some types over others? And why does it think it has the sufficient expertise to be able to determine which technology is better for business? This push for blockchain shows that the ruling party 1) doesn’t understand blockchain technology, 2) is desperate to appear savvy and 3) is not thinking ahead to not-too-far-away time when blockchain technology has evolved to the point of blending with others, both current and yet-to-be-invented.

There are upsides, though: this move could encourage the hundreds of self-proclaimed blockchain experts in the country to actually start learning about real applications, rather than just spouting utopian platitudes that have little grounding in either history or economics (judging from media quotes and published work – I’m sure there are smart ones that do “get it”).

And, it could attract more blockchain businesses to Spain, which could kickstart an ecosystem that in turn could encourage broader, more sustainable development.

But it’s not enough to make a difference. To attract technology development, Spain needs to re-examine its entrepreneurship laws, remove the “exit tax”, further relax labour laws, reduce bureaucracy, and work hard at moving up from position #86 (!!!) in the World Bank’s Starting a Business Index.

Encouraging technology exploration is a good thing, especially for something as potentially transformative as blockchain applications. But making empty declarations with the sole purpose of window-dressing will end up accelerating and perhaps deepening the disappointment when unrealistic expectations are not met – and that won’t be good for anyone.

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