Service like BitPay help businesses transition from dollars to BTC, while removing the paperwork/record-keeping barriers you described above.
1) A coffee shop I frequent here in Vancouver simply enters the dollar amount for my coffee, and BitPay generates a QR-code-based invoice that I scan with my phone and pay. BitPay then converts these bitcoins to dollars and gives the coffee shop the *exact* amount they requested, minus a 1% fee (less than credit cards). BitPay absorbs all exchange risk and eliminates any "currency-exchance / capital-gains" accounting. It is *easier* for a vendor than getting set up with Visa.
2) In the future, and as the bitcoin economy grows, it will become advantageous to *never* convert to fiat. I have described "real-time" tax-collection systems for merchants such as coffee shops, in other posts. Such systems could remit the VAT instantly as it is collected on each purchases. Furthermore, the tax-authority could instantly credit the merchant with bitcoin payments to offset input tax credits against tax-deductible supplies like coffee beans or electricity bills. In a world where all customers pay in bitcoin and all vendors accept bitcoin, it would be possible to pay your VAT taxes but never have to fill out another form again!
My point is that bitcoin will help to streamline government, making it more efficient, and restoring peoples faith in these institutions after the scandals from the recent financial crises.
1) You just describe a method that moves the costs of paperwork from the business to the customer.
2) You are going down the deep end. Government wants you to use and hold onto their currency so that they can inflate and steal purchasing power. Collecting taxes is not going to solve that problem.
Bitcoin is a disruptive technology. The social, political, tax, and welfare systems in place will be forced to adapt. You are trying to pigeon-hole bitcoin into the current system, and I think this is what is preventing you from imagining the future: bitcoin is a game changer.
>> You just describe a method that moves the costs of paperwork from the business to the customer.
Are implying that all citizens would be required to track their entry and exit points into bitcoin in dollar terms and pay capital gains on the difference? This is a worthwhile debate and I look forward to seeing guidance issued by various tax authorities on issues like these. Here's my take:
Bitcoin makes VAT easier to collect but capital gains tax much harder to collect. If you attempt to collect tax on bitcoin gains, then you must also allow taxpayers to write-off bitcoin capital losses. This system would be very easy to cheat in favour of the tax payer and very hard to police by the tax authority. People hoping to minimize their capital gains on bitcoin could easily obfuscate their trail (in fact it would be hard not to): how is anyone going to know what exactly Sam bought with her bitcoins, or the exact price she bought them off of Joe? Furthermore, such a system would be ripe for abuse: less scrupulous people could easily "create" paper trails to appear as though they took an enormous capital loss in bitcoin trading. They could then use this to write off other capital gains in an unfair way.
On the other hand, people would pay VAT seamlessly with bitcoin, and would have very little incentive or ability to avoid it. Merchants would love it, because the real-time tax systems I described would eliminate headaches. Tax-authorities could shrink because the blockchain could be audited in real time and payment would be automatic (no collection issues).
>> You are going down the deep end. Government wants you to use and hold onto their currency so that they can inflate and steal purchasing power. Collecting taxes is not going to solve that problem.
Do you imagine "them" as this cohesive group of people plotting to make your life miserable? The government (aka "they") are just a bunch of unique individuals trying to make a nice life for themselves and those close to them. I agree that the system in place steals purchasing power through inflation--most people do. But to imply that everyone in government drools over the thought of stealing your purchasing power is juvenile. Everyone knows there is corruption in places, but still most people in government are just like you or I. They dislike crazy banking fees and they worry about reckless government spending affect their purchasing power in retirement.
The inflation problem is *systemic*. With the current Federal Reserve system, it is politically easiest to "print money and worry about it tomorrow." This is not a conspiracy. This is just people kicking the can down the road.
Bitcoin forces governments to be accountable. This is better for everyone.