Towards The Digitalization Of The Nigerian Tax Administration: Challenges And Prospects
Introduction
The unapologetic impact of the fourth industrial revolution (4IR) on global economic sectors and administrations has accentuated the move towards seamless digitalization. In short, as novel applications such as the Internet of Things (IoTs), Artificial Intelligence (A.I), Big Data Analytics and Cloud computing gain prominence by the day, Tax regimes and industry leaders alike are compelled to embrace new and easier models of tax administration which the digital age offers. This is underscored on the grounds that an efficient tax system is the wheel and life-blood of any moving economy.
So much so has the global tax administration been facilitated by the digital clime that in 2013 a Russian astronaut was reported to have paid tax from the space orbit.[1]This transition engenders lots of prospects, especially to developing nations like Nigeria which in 2020 adopted digital models into her tax regime. Thus, the encumbrance of this essay examines the recent e-tax services in Nigeria, identifies the prospects and the manifest challenges. The last leg of this paper concludes with recommendations.
Digitizaton of Tax in Nigeria
Digitalization of tax or E-taxation as it fondly termed, is the employment of digital infrastructures such as computer systems in the process of levying and payment of taxes.
It could also be said to be the use of information technology in re-organization of a country’s administrative tax work methods and strategies to obtain greater benefits including the implementation of new technologies[2].
Indeed, digital economy is becoming the world most innovative and far reaching economy. In 2018, the Nigerian investment promotion commission projected that the Nigeria’s digital economy would generate $88billion dollar and create three million new jobs by the end of 2021.
The Challenges of Tax Digitization in Nigeria
First, the applicable rules for corporate taxation in Nigeria do not effectively capture the realities of a modern economy in our world of fast-paced digital transactions[3]. Given that non-resident companies are taxed in Nigeria based on profits derived from Nigeria, the question as to whether a foreign company is liable to income tax in Nigeria is usually controversial[4]. Section 13 of Companies Income Tax Act (CITA) implies that a non-resident company must have physically performed activities in Nigeria, directly or indirectly, before such a company can be liable to income tax in Nigeria[5]. Thus, where a software company provides online data to users in Nigeria without being physically presence in Nigeria in any form, it may be difficult to conclude that such a company is liable to seen CIT in Nigeria although the company could have derived income from Nigeria.
See also: National Assembly Exercise of Investigative Functions Under Section 88 CFRN, 1999
In light of the foregoing, a major challenge is determining at what point such non-resident would be deemed to have carried on business in Nigeria and thus liable to income tax in Nigeria[6]. This is because the absence of the required fixed based or physical operation in Nigeria under Section 13 of CITA as made it difficult for the FIRS to establish liability of such foreign companies to Nigerian tax.
Although, the FIRS seem to have succeeded in ensuring that VAT is deducted and accounted for on cross border payments for transaction between foreign companies and Nigerian companies, tshe absence of relevant provisions in the Nigeria tax laws covering taxation of digital activities is a major challenge that has resulted in loss of revenue to the government of Nigeria[7].
Another problem is the use of electronic tax system in tax administration. One of the challenges of electronic taxation in Nigeria is that only the FIRS, which is the tax authority at the federal level, has fully automated its processes. Many tax authorities at the state level are still using manual tax processes, except for a few states such as Lagos State and AkwaIbom State lately which has introduced e-filing, e-tax payments and e-tax clearance certificate systems[8]. This situation inhibits effective collaboration between tax authorities at the federal and state levels to prevent double taxation[9].
The Prospects of Tax Digitization in Nigeria
Everett Rogers developed innovation theory in 1962 in the first edition of “Diffusion of Innovations”. One of the case studies considered by this theory is information technology of administrations. From study, this theory established that a technological innovation embodies information and its adoption would lead to reduction in complexities of tax related issues in Nigeria[10]
In the empirical analysis of this theory on the effect of tax administrative and tax reform on tax revenue generation in Lagos State of Nigeria, it was found that a long run relationship between tax reforms and tax efficiency and tax revenue generation in Lagos State possibly attributed to incompetence. The study also revealed that the tax reforms had a positive significant effect on the revenue generation structure of Lagos State[11]. The study and that of Theobald in 2018[12] had some similarities with the findings of this study[13]. Also, both studies were found to be consistent with the result obtained in the analysis of the effect of information technology on effective tax assessment in Nigeria. The results reveal that each of digital tax net of tax payers, enabling tax laws, information technology acquisition and financial resources support exhibited a positive significant effect on effective tax assessment. Therefore, the result of the study implied that digitalization had a positive and statistical significant effect on effective tax assessment in Nigeria.[14]
Flowing from the foregoing, tax digitization in Nigeria will bring about an effective tax assessment. An effective tax assessment is a process which ensures fairness, adequacy, simplicity and transparency of tax payers as well as tax administrators. In other words, proper application and implementation of information technology will significantly enhance effective and efficient tax assessment by the tax administrators in the three tiers of government as intended by section 8(1) of the Federal Inland Revenue Services Act (FIRSA) of 2007[15].
Also,digitization of the tax administration service in Nigeria (submission of tax returns by electronic means and remote control) will help to change the structure of employees in tax administration. There will no longer be a need for so many staffing officers dealing with paperwork. These employees will be re-qualified and redirected to the provision of services and control of taxpayers, cross-checking assets and combating in the shadow economy.[16]
Finally, the flexibility of tax administration with digital disturbances would harmonize the model of electronic (digital) business and the model of tax control applied by tax administration, which are adapted to traditional business activities[17].
Conclusion and Recommendation
In an effort to carry out the objective of this essay, this paper has analyzed the current situation of tax digitization in Nigeria, the challenges as well as the prospect of this subject matter. It is therefore recommended that tax authorities in Nigeria employ digital tools in ensuring that all tax payers pay real taxes and the administration of tax becomes resourceful.
[1]Availableonline <https://www.rbth.com/business/> Accessed on 3rd August, 2021.
[2] Isiadinso O, Omoju E (2019). Taxation of Nigerian‟ digital economy: Challenges and proposals. Andersen Tax Review 2(2):1-5.
[3] Oseni, M. (2015). Sustenance of tax administration by information and communications technology in Nigeria, Archieves of Business Research, 4(1): 47-54.
[4] Etim, R.S., Jeremiah, M.S. and Jeremiah, O.O., (2019). Attracting Foreign Direct Investment (FDI) In Nigeria through Effective Tax Policy Incentives. International Journal of Applied Economics, Finance and Accounting, 4(2), pp.36-44.
[5] Otieno, O.C., Oginda, M., Obura, J. M., Aila, F. O., OjeraandSiringi, E. M. (2013). Effect of information systems on revenue collection by local authorities in Homa Bay County, Kenya, Universal Journal of Accounting and Finance, 1(1): 29-33.
[6] Wasao, D. (2014).The effect of online tax system on tax compliance among small taxpayers.University of Nairobi.
[7] Beeson, D., Soondram, H. P., and Jugurnath, B. (2016).Assessing the determinants of income tax compliance Mauritius: A study of individual taxpayers. University of Mauritius
[8] Dzidonu, C.K. (2012).Using Information and Communication Technology (ICT) in Managing National Resources.Paper Presented at the 7th Internal Audit Forum, Accra.
[9] Adimassu, N. A., and Jerene, W. (2015). Determinants of voluntary tax compliance behaviour in self-assessment system: Endemic from SNNPRS, Ethiopia. International Journal of Science Research:2319-7064.
[10] Ajala Michael O. O. and Adegbie F. F. (2020).Effects of information technology on effective tax assessment in Nigeria
[11] Asaolu T, Dopemu G, Monday T (2015). Studied the effect of tax administrative and tax reform on tax revenue generation in Lagos State of Nigeria. Journal of Management Policy 2(2):98-119.
[12] Theobald F (2018). Impact of tax administration towards government revenue in Tanzania: Case of Dar-es Salaam region. Journal of Social Sciences 7(1):13-21.
[13] Ajala Michael O. O. and Adegbie F. F. (2020).Effects of information technology on effective tax assessment in Nigeria
[14] (Supra)
[15] Ishola KA (2019). Taxation principles and fiscal policy in Nigeria (2nd Ed). Kastas Publishers Nigeria Limited, Ilorin Nigeria. Oluyombo OO, Olayinka OM (2018). Tax compliance and government revenue growth in Nigeria. Lapai International Journal of Administration 1(2):245-253.
[16]Marija Vuković (2019).Towards The Digitization Of Tax Administration
[17] Lipniewicz, R. 2017. Tax administration and risk management in the digital age. Information System in Management, Vol.6 (1), 26-37.
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