Project – Impact of Digital Tax Administration on Revenue Generation and Taxpayer Compliance in Nigeria

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Tax administration worldwide has been undergoing rapid digital transformation driven by advances in information and communication technology (ICT), the need to broaden the tax base, and the desire to reduce the cost and complexity of tax compliance (World Bank, 2021). Digital tax administration—the use of online platforms, electronic filing and payment systems, data analytics, automated assessments, and integrated taxpayer registries—is widely promoted as a way to improve revenue mobilization, reduce leakages, and increase voluntary compliance by making compliance simpler and more transparent (World Bank, 2021; International Monetary Fund [IMF], 2023).

In Nigeria, tax authorities have progressively introduced digital solutions to modernize tax administration. The Federal Inland Revenue Service (FIRS) and other tax agencies have deployed e-registration, e-filing, e-payment (eTaxPay), and integrated tax administration systems aimed at improving taxpayer services and enhancing revenue collection (Federal Inland Revenue Service [FIRS], n.d.). These reforms are part of broader modernization initiatives intended to improve data quality, reduce direct human interface, and enable real-time monitoring of tax flows (FIRS, n.d.; World Bank, 2020).

Empirical studies in Nigeria and other developing countries report that digital tax tools can increase declared taxable transactions, reduce compliance and administrative costs, and support enforcement through better audit targeting (Oladipo & Adekunle, 2021; Ogbada et al., 2023). However, effectiveness depends on factors such as taxpayer access to technology, digital literacy, trust in government systems, and the quality of implementation (Oyedokun & Ayinde, 2023).

Given Nigeria’s urgent need to expand non-oil revenue and improve fiscal stability, understanding how digital tax administration affects actual revenue generation and taxpayer compliance is crucial. This study therefore examines the impact of digital tax administration on revenue performance and compliance behaviour in Nigeria.

1.2 Statement of the Problem

Despite successive reforms, Nigeria continues to face a persistent revenue gap relative to fiscal needs, with a tax-to-GDP ratio lower than the African average (World Bank, 2024). Although digital initiatives have been introduced, challenges remain in converting these technological investments into sustained compliance gains (IMF, 2023).

At the operational level, tax agencies in Nigeria still encounter problems such as fragmented systems, incomplete integration across revenue bodies, intermittent technical failures, limited taxpayer awareness, and uneven access to digital services among informal and small taxpayers (Ogbada et al., 2023). These challenges may blunt the potential of digital tools to raise revenue and improve compliance. Furthermore, there is limited empirical evidence that isolates the effect of specific digital interventions on revenue performance and compliance metrics across taxpayer categories in Nigeria (Oyedokun & Ayinde, 2023).

1.3 Objectives of the Study

General Objective:
To evaluate the impact of digital tax administration on revenue generation and taxpayer compliance in Nigeria.

Specific Objectives:

1. To examine the effect of e-filing and e-payment platforms on tax revenue performance.

2. To assess the influence of digital taxpayer services (registration, online support, e-invoicing) on voluntary compliance behaviour.

3. To determine how data analytics and automated information-matching have affected audit outcomes and detection of non-compliance.

4. To identify institutional, technical, and socio-economic factors that moderate the impact of digital tax administration.

5. To recommend policy measures to enhance the effectiveness of digital tax administration in Nigeria.

1.4 Research Questions

1. What effect do e-filing and e-payment platforms have on overall tax revenue collection in Nigeria?

2. How do digital taxpayer services influence voluntary compliance?

3. To what extent have analytics and automated matching improved audit efficiency?

4. What barriers limit the impact of digital tax administration?

5. Which policy actions can strengthen its impact?

1.5 Research Hypothesis

• H₀: Digital tax administration has no significant impact on revenue generation and taxpayer compliance in Nigeria.

• H₁: Digital tax administration has a significant positive impact on revenue generation and taxpayer compliance in Nigeria.

1.6 Significance of the Study

This study contributes to policy, practice, and scholarship. For policymakers and tax administrators (FIRS and other agencies), the findings provide evidence on which digital interventions yield measurable revenue gains and improved compliance (World Bank, 2021; IMF, 2023). For taxpayers, the study identifies access barriers and trust issues that limit participation in digital platforms. Academically, it contributes to the growing literature on tax digitalization in developing countries (Oladipo & Adekunle, 2021; Ogbada et al., 2023).

1.7 Scope of the Study

The research focuses on the Federal Inland Revenue Service (FIRS) and selected taxpayer categories in Nigeria. The time frame covers 2016–2024 to capture pre- and post-digitalization phases. It combines quantitative analysis of revenue and compliance indicators with qualitative interviews of tax officials and taxpayers (World Bank, 2024).

1.8 Limitations of the Study

Possible limitations include incomplete administrative data, limited respondent availability, and difficulty isolating digitalization effects from other fiscal reforms. These will be mitigated by triangulating data sources and applying robustness checks (IMF, 2023; World Bank, 2024).

1.9 Operational Definition of Terms

• Digital Tax Administration: Use of ICT (e.g., e-registration, e-filing, e-payment, analytics) to manage taxes (IMF, 2023).

• Revenue Generation: Government income derived from taxes, measured by FIRS statistics (World Bank, 2024).

• Taxpayer Compliance: Fulfilment of tax obligations in terms of registration, reporting, and payment (Oyedokun & Ayinde, 2023).

1.10 Organization of the Study

The study is structured into five chapters: introduction, literature review, methodology, data analysis, and conclusion.

Project – Impact of Digital Tax Administration on Revenue Generation and Taxpayer Compliance in Nigeria