Improve Compliance and Analytics by making sale

transactions transparent and trustworthy using Internet of

Things enabled Point of Sale system
Harish Reddy

Tanuj Pasupuleti

Bangalore, Karnataka, India

macroangle@gmail.com

Helsinki, Finland
tanuj.naga@gmail.com

Abstract
Traditional Point of Sale (POS) and transactional devices pose an
especially high risk for noncompliance and also aid those who
commit fraud. All unreported and hidden sale transactions has
given rise to shadow economy which costs nations vast amounts
in tax revenue. The inefficiencies of the system has given scope for
siphoning of funds and diversion of public resources when
beneficiaries of the system are not the target audience.
An Internet of Things enabled Point of Sale device along with endto-end cloud based compliance solution, securely enhances the
recording, collection and management of transactions. The
underlying platform provides stronger encryption, security,
connectivity and cloud storage capabilities which are required for
different compliances.

1. INTRODUCTION
Shadow economy, defined as legal activity concealed from the
government authorities. It includes black money, payments made in
cash which are unaccounted for and most importantly quid pro quo
which is intrinsic in nature. There are numerous ways that these tax
evasions would occur like water under the mat. The prime reason
for the inability to track these evasions was the cash in-out timing
and second being predominant usage of cash.
The culture of cash has deep roots in India. Small businesses,
which contributes to 45% to Indias GDP, transact primarily in cash
despite the Centers push towards digital transaction [6]. Nearly
two-thirds of Indias GDP, ($1.4 trillion or Rs 90 lakh crore), is a
cash economy where buying goods, paying for services, or paying
wages are all in cash. And while some of this is legitimate tax-paid
money, quite a bit of it is not. Its clearly a known fact that Greece
which swept into bankruptcy and had thrown the world into the
path of recession lost 10 percent of GDP due to the inability of
tracking Greek companies and workers who skirted close to 31
Billion Euros in taxes [13, 10].
Just how big is Indias black money economy? In 2011, three
government think tanks were asked to estimate that. Their final
report remains unpublished. But other, unauthorized estimates peg
it at 25-30% of GDP or $600 billion annually. The real loser is, of
course, the government: it is deprived of an estimated $200 billion
(or Rs 13 lakh crore) in yearly tax revenues because of black
money. Consider this: Indias revenue, including indirect and direct
taxes, is currently around Rs 9.1 lakh crore; if the black money that
is swirling in the economy is reined in and accounted for, then
(albeit theoretically) the government could declare a tax-free year
[7].

Effects on economy

The issue of effective collection of tax revenues is today one of the

most significant problems faced by individual states, as public
levies are the primary source of budget revenues [10]. Tax gap may
be defined from the institutional perspective of tax authorities as
the difference between tax collected and the tax that should be
collected [HMRC 2012, p.3]. The primary component embedded
in the tax gap is tax evasion, alongside with the tax avoidance and
tax debt included by numerous authors. Tax evasion comprises the
following determinants [Murphy 2014, p.7]:
a)

trading in shadow economy,

b)

untaxed proceeds of frauds and other crime,

c)

capital gains tax,

d)

inheritance tax,

e)

offshore tax abuse,

f)

criminal attacks on the tax system,

g)

failure to take care (taxpayers errors or negligence),

h)

error (resulting from the action).

The current system of taxation solely depends on merchants

submissions and filing. There exist few entities who are not fully
transparent and compliant, leading to sub-optimal records being
submitted thereby resulting in loss of revenue for the government.
Cross verification of the above transactions currently is only
possible through analyzing bank records, duplicate sale receipt,
insider information, written submission etc. These verification
processes involve scrutinizing voluminous documents which are
error prone, time consuming and can be inconclusive because of
potential legal disputes [8].

2. RETAILING IN INDIA
India is a nation of shopkeepers as well as shoppers. Retailing is
the last link that connects the individual consumers with the
manufacturing and distribution chain. A retailer is involved in the
act of selling goods to the individual consumer at a margin of
profit. There are primarily two types of retailing - Organized and
Unorganized. Organized retailing comprises mainly of modern
retailing with busy shopping malls, multi stored malls and huge
complexes that offer a large variety of products in terms of quality,
value for money and makes shopping a memorable experience.
Organized retail accounts for 7 percent of retail market in India.
The technology and innovation took a big leap in these organized
retailing but are still taking a decade old techniques in unorganized
ones. The aforementioned tax problem predominantly arises in
unorganized retailing which accounts for 93% of Indian market.
Current POS (point of sale) systems and transactional devices pose
an especially high risk for tax noncompliance and inefficient tax

collection. While digital technology has accelerated the payment

transaction processing, it has aided those who would commit fraud.

3. SOLUTION
3.1 IoT enabled POS device
Internet of Things [IoT] is defined as network of physical devices
embedded with electronics, software, sensors, actuators and
network connectivity that enables these objects to collect and
exchange data. IoT gives an edge in terms of security and
transparency to Governing bodies by providing enormous
quantitative information which can be developed as opportunities
for policy makers and regulators.
The IoT enabled POS device looks and behaves similar to
traditional point of sale device that exists currently in market. The
additional feature of having GPS chip and communication module
gives the ability for the device to communicate over the internet to
submit the sale transaction details and the current location where
the sale has happened. The device when powered-on is
programmed to start a compatible retail software which performs
sale transaction as outlined in (Figure 2) and further explained
below.

Figure 2. Microsoft Azure cloud infrastructure (Event Hub) for

end-to-end stream processing architecture [2]

3.3 Sale Transaction Flow

A customer who is ready with his purchase would approach the
merchant to buy the products. The merchant would ask for the
customer details, key-in the purchase product details and the
quantity. The POS system would calculate subtotal, additional tax if
any and prepare the final total amount due from the customer. After
completion of payment, the sale receipt would be printed and the
transaction is now complete.
The sale transaction data is further enhanced with merchants
details, current time, current location and other required information
to create a structured sale transaction data (see Figure 4). This sale
transaction is encrypted using strong cryptography technique and is
sent on a secure internet channel to be stored on a centralized server
in a cloud environment.

Figure 1. IoT enabled POS device

3.2 Cloud Infrastructure

Cloud computing [12, 1] is a model for on-demand access to a
shared pool of configurable resources (e.g. compute, networks,
servers, storage, applications, services, and software) that can be
easily provisioned by three commonly deployed cloud service
models namely Infrastructure as a Service (laaS), Platform as a
Service (PaaS), Software as a Service (SaaS). IaaS (Event Bus, IoT
Gateway) can be used to implement custom gateway interfaces to
support IoT devices. Therefore, it is well understood that cloud
computing platforms are well suited for hosting IoT devices as they
offer an elastic hardware resources (e.g. CPU, Storage, and
Network) that can be scaled on-demand for handling large
quantities of data from IoT devices with uncertain volume, variety,
and velocity.
The below diagram express reference implementation of IoT cloud
infrastructure by Microsoft to collect and then hand-off data for
processing:

Figure 3. Sale Transaction Flow

only his sale transactions and the governing body can see all
merchants sale transactions based on governing authority.

After stripping the merchant, consumer and payment information

from sale transaction details, the data consisting of product,
category, quantity, geo location and other details is made available
for public to derive insights into product analytics like real-time
stream, opportunity, patterns in usage, inflation, demographics,
forecasting, predictive, segmentation, funnel, coherts etc. This will
help to provide much deeper insights into customer needs and
requirements.

Creating Ecosystem: Aligning

Architecture, Governance and Strategy
3.6
Figure 4. Sample Sale Transaction in JSON format
Both real-time and historical transactional details is now available
to authorized entity and the merchant, at any time for any kind of
audit over compliance.

3.4 Securing the transit

The sale transaction data contains very sensitive information like
credit card, personal and financial information and should be
secured from prying eyes. The sale transaction details in
encrypted/decrypted using RSA algorithm for Asymmetric key
cryptography, in order to achieve strong data security. A new RSA
key pair consisting of a public and private key is generate for every
device. The data is encrypted using public key and decrypted using
its corresponding private key.
Every device is configured with an unique identifier and the RSA
public key. The sale transaction details is encrypted using public
key and submitted to centralized server along with the device
unique identifier. The centralized server would identify the device
from the registry using the unique identifier and use its assigned
private key to decrypt incoming data to reveal the sale transaction
details.

3.5 Benefits to different stakeholders

The information thus submitted to centralized server has necessary
technical architecture infrastructure to limit data visibility to only
the concerned authorized user, for e.g. merchant is limited to see

The rise of e-commerce has changed how people shop today.

Phenomenal success of Amazon, Flipkart, Snapdeal and others has
not threatened the future of brick-and-mortar stores [3]. In fact, a
major chunk of recent research shows that consumers are more
likely to explore a brands products and do research on the
products of their interest online, offline channels will continue to
play a critical role for discovery and entertainment. According to
Forrester Research, 61% of shoppers surveyed said that they
still value interacting with store associates, asking them for
advice and experience the product before buying. This is one of
the primary advantages offered by offline stores over online outlets
- they allow customers to have a deeper level of engagement with a
brand, its products, employees, and fellow shoppers.
By building this platform [4], we are creating an ecosystem for
business to bring in their product/services and focus on selling,
meanwhile, rest of the functions required to run a business like
creating digital presence, security, monetary transactions,
governance, taxation, api integration, analytics etc. are provided
within the platform.
For example, Mr. John an expert in cheese cake wants to start a
bakery. He finalizes on a rental property in Bangalore and applies
for required licenses. The governing authority grants him license
number LICBN24031983 and hands over starter kit containing
pre-configured IoT enabled POS device, merchant portal
credentials, required documentation, etc. John makes an entry of
Strawberry Cheese Cake, one of his products, into the device.
The device would sync this information to the centralized server
and all the public information of this merchant like address,

products, pricing etc. is available at www.indiastores.gov.in/

LICBN24031983. The information is available to different service
providers via API such as:

Search Engines and Location services like google.com,

bing.com is updated with merchant and their product
information

Integrating with product aggregators and service

providers like amazon.com, swiggy.com, doordash.com
would allow to sell and ship merchandise without
developing standard e-commerce functionality [5] by the
merchant himself

Making data-driven decisions using analytics available at

merchants portal to drive conversions and increase
revenue

Basic governance and accountancy is also available in

merchants portal

4. FURTHER EXTENSIONS
The above solution has lot of potential to curb inefficiencies in
other systems such as,

4.1 Public Distribution System (PDS)

The loopholes and inconveniences in public distribution system
through fair price shops, has led to services and products not being
received by the targeted individuals. This device clubbed with a
way to identify the target individual through biometric [9] and thus
implemented with this system will reduce the corruption level and
help countrys economy to reach new heights. Culturally, this will
motivate the countrys image to being a transparent error free
economy which in turn leads to GDP benefits in terms of FDI and
Country Rating [9, 14].

4.2 House Rent Allowance (HRA)

The income tax declaration for house rent allowance (HRA)
requires tenants to furnish PAN details of the home owner. The
home owners do not show the actual rental income earned at their
face value. Instead, the combined income from other sources and
aggregate rental income over the year is declared at the end of
financial year. The host of steps to track possible concealment has
been ineffective.
If we could categorize property rentals as service, impose service
tax on such transactions and have the tenant claim HRA only on
submission of sale/service transaction receipts, then we can create
additional revenue opportunity for the government via service tax
on rental income.

4.3 Fund Management

In any of a fund managements, by recording activity at the product,
service and its quantity level this system provides highest level of

accountability and help to resolve any inefficiency in the

management of funds e.g. Public Works Department.

5. CONCLUSIONS
By using our IoT enabled POS system, we can explore new ways to
lay foundation on how the business should be established, operated
and made accountable for their activity which thus outlined will
clear to national transformation. This platform will benefit banks,
consumers, corporations and government. This also helps in forging
path to payments digitization [11], curb shadow economy and
reduce the tax gap. By capturing data from the system, we can
expect staggering insights and analysis that can feed us with
valuable information which has multi fold applications.

6. REFERENCES
[1] X. Zeng, S. K. Garg, P. Strazdins, P. Jayaraman, D.
Georgakopoulos and R. Ranjan, IOTSim: a Simulator for
Analysing IoT Applications, Journal of System Architecture,
Elsevier.
[2] ScottGu's Blog - Azure: Announcing New Real-time Data
Streaming and Data Factory Services.
[3] Forbes India Magazine - Brick-and-mortar stores growing
despite etail boom
[4] Platform Business Model - What is it?
[5] The rise of the API economy and consumer-led ecosystems
[6] Small firms still transact in cash - TCA Sharad Raghavan, The
Hindu
[7] Cash deals keep Indias parallel economy afloat, the loser is
govt - Sanjoy Narayan, Hindustan Times
[8] Govt looks to ease TDS pain Sidhartha, The Times of India
[9] Soon, hand-held devices to monitor PDS - Geetha Gupta, The
India Express
[10] Konrad Raczkowski, Institute of Economics, University of
Social Sciences in Warsaw, Poland, Measuring the tax gap in
the European economy, Journal of Economics and
Management
[11] Forging Path To Payments Digitization McKinsey &
Company
[12] Cloud Computing: a Perspective Study, Lizhe WANG, Gregor
von LASZEWSKI, Younge ANDREW, Xi HE
[13] Shadow Economies on the Rise Around the World - Chris
Prentice, Bloomberg
[14] e-ration shop - Mahammad Shafi & K.Munidhanalakshmi
[15] Two sets of registers, two sets of income details The Hindu