Digital tax systems reshape enforcement as Nigeria targets higher revenue

Nigeria’s tax authorities are integrating multiple data sources from banking transactions to corporate filings to build a more complete picture of taxpayer activity, a shift experts say could significantly improve compliance and boost government revenue.

“Looking at the big picture, the government is trying to integrate multiple data sources to build a complete view of taxpayer activity,” said Kenneth Erikume, a tax expert at PwC.

The shift comes as the government intensifies efforts to expand non-oil revenue and meet ambitious fiscal targets, with authorities increasingly relying on technology-driven enforcement rather than higher tax rates.

At the centre of this transition is the Federal Inland Revenue Service (FIRS), which has begun deploying digital tools to analyse financial transactions, reconcile tax filings and detect discrepancies between reported income and actual economic activity.

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Historically, Nigeria’s tax system has relied heavily on manual audits and self-reporting, creating gaps that allowed widespread underreporting. But recent reforms are pushing the system toward a data-driven model that leverages real-time information and automated validation.

Under the new approach, financial institutions, fintech firms, and large corporates are expected to integrate their systems with tax platforms, enabling authorities to track value-added transactions, validate invoices, and flag inconsistencies more efficiently.

Electronic invoicing is also being introduced to verify transactions in real time, replacing delayed post-filing audits and giving tax administrators earlier visibility into business activity.

Nigeria’s compliance gap remains significant.

Out of an estimated 69 million economically active Nigerians, according to CEIC data in 2020, only 1.2 million are active taxpayers according to NRS, and even fewer are active in e-filing or digital compliance, underscoring the scale of the informal economy and the limitations of traditional enforcement systems.

Economists say the use of data analytics could help narrow this gap by expanding the tax net and improving detection of evasion without necessarily increasing tax rates.

Tax experts note that advanced analytics tools allow authorities to move from reactive audits to predictive compliance monitoring, identifying unusual patterns across datasets such as banking records, corporate filings and digital payments.

However, the transition has not been seamless.

“Most companies are still in the process of implementation and are seeking extensions,” said Ayodapo Bamidele, a tax technology expert.

Many large corporates are struggling with system integration, data mapping and interpreting the technical requirements set by the Federal Inland Revenue Service (FIRS), raising compliance costs and increasing the risk of reporting errors in the short term.

Despite these challenges, analysts say the long-term benefits could extend beyond revenue collection.

“Efficiency is the obvious benefit, but the deeper impact is assurance. Continuous validation strengthens governance, boosts investor confidence and aligns Nigeria’s reporting standards with global best practice,” said Oluyemisi Daramola, Managing Partner at Bamidele Daramola & Co

The move toward data-driven enforcement also reflects a broader global trend, as tax authorities increasingly deploy digital tools, artificial intelligence, and third-party data to improve compliance and reduce revenue leakages.

However, concerns remain around data governance, system integration and the ability of institutions to manage large volumes of sensitive financial information effectively.

Experts warn that without strong coordination across agencies and reliable data infrastructure, the full benefits of analytics-driven enforcement may be difficult to achieve.

Still, as Nigeria seeks to reduce its reliance on oil revenue and strengthen fiscal stability, analysts say the success of its digital tax strategy could play a critical role in determining the country’s long-term revenue performance.