Experts push data-driven tax systems to curb evasion in digital economy

Tax and fiscal policy experts have urged governments to adopt smart, technology-driven taxation systems, warning that rapid digitalisation of the global economy is making traditional manual tax administration increasingly obsolete.

This position was outlined in a paper presentation titled “Digital Economy, Smart Taxation and Global Cooperation: Integrating Technology and Transparency in Modern Fiscal Systems,” which examined the transition from fragmented, manual tax processes to integrated, real-time digital fiscal frameworks.

The paper was presented by Adewale Ajayi, Partner and Head of Tax, Regulatory and People Services at KPMG Africa, during the 28th Annual Conference of the Chartered Institute of Taxation of Nigeria  on Wednesday in Abuja.

He observed that conventional tax systems, which rely heavily on physical presence, periodic filings and manual enforcement processes, are increasingly inadequate in an environment where digital platforms generate value across borders without requiring physical infrastructure.

Ajayi stressed that governments are now under growing pressure to protect tax bases, enhance fairness and strengthen compliance through modernised systems.

According to him, the global economy is undergoing rapid transformation driven by digitisation, creating new realities that demand a shift in fiscal administration.

He noted that while traditional systems are slow and fragmented, emerging smart taxation frameworks are increasingly characterised by automation, real-time monitoring and data-driven compliance mechanisms.

He that the digital economy operates across borders, relies heavily on data and analytics, scales rapidly with minimal physical footprint and depends significantly on user connectivity and participation. These attributes, it noted, complicate tax administration, particularly in determining taxable presence and accurately tracking income generated by digital platforms and non-resident entities.

Ajayi highlighted that tax authorities are facing persistent challenges such as base erosion and profit shifting, difficulties in establishing tax nexus without physical presence, gaps in administrative capacity and weak identification systems for taxpayers operating within the informal and digital sectors.

“These challenges are further compounded by limited access to accurate digital data and evolving business models that often outpace regulatory frameworks”, he added.

The concept of smart taxation was defined as a data-driven, technology-enabled and real-time approach to tax administration in which artificial intelligence, analytics and integrated platforms are deployed to monitor transactions, assess liabilities and enforce compliance continuously.

“In this model, tax administration moves away from periodic manual processes towards automated and predictive systems”, he stated.

He further described smart taxation as relying on automation, artificial intelligence tools, real-time reporting systems, risk-based compliance mechanisms and minimal human intervention.

Its key objectives were identified as improving efficiency, reducing revenue leakages, enhancing taxpayer experience, increasing voluntary compliance and strengthening fraud detection through data intelligence.

Ajayi also emphasised the role of technology in improving transparency and compliance through systems such as e-invoicing, digital filing platforms, big data analytics and AI-driven fraud detection tools.

He noted that integrated financial systems and real-time VAT collection mechanisms can significantly improve revenue mobilisation, particularly by enhancing visibility in the informal and digital sectors.

Ajayi pointed to the expansion of tax bases through digital platforms and fintech ecosystems, improved tracking of informal economic activities, real-time collection systems and greater integration of compliance tools across financial infrastructure.

He argued that these developments could significantly improve efficiency and enable more accurate revenue forecasting.

However, he also warned that the transition to digital tax systems is not without challenges.

“These include weak digital infrastructure, resistance to institutional change, limited data integration among government agencies and the high cost of implementing and maintaining advanced tax technology systems”, he mentioned.

Additional concerns highlighted include cybersecurity risks, policy delays in keeping pace with technological innovation and regulatory difficulties in addressing emerging areas such as cryptocurrencies and digital assets.

He further reviewed global digital tax reforms, noting that several jurisdictions are already implementing technology-driven systems to enhance transparency and efficiency.

These include API-based integration platforms, digital tax stamps for traceability and unified digital tax administration systems, with examples drawn from countries adopting digital transformation strategies in their fiscal operations and the United Kingdom’s Making Tax Digital initiative.

Ajayi noted ongoing reforms aimed at strengthening tax administration through digital tools, expanding taxpayer registration systems and integrating informal sector activities into the formal tax net.

He also highlighted increased regulatory attention on digital economy taxation, particularly in relation to virtual assets, digital service providers and emerging online financial activities.

He also stated that Nigeria’s evolving tax administration framework is moving towards full digitalisation of the tax lifecycle, real-time reporting, deeper integration with financial systems and stronger enforcement mechanisms designed to ensure compliance across sectors, including the digital economy.

At the same time, Ajayi cautioned that digital tax reforms carry risks, including cybersecurity vulnerabilities, potential double taxation issues, policy fragmentation and the risk of over-centralisation of enforcement powers.

He recommended that governments balance technological adoption with strong governance frameworks, inclusive system design and continued human oversight to ensure accountability and institutional trust.

He noted that the digital economy is fundamentally reshaping taxation globally, making international cooperation essential to safeguard fairness, reduce inefficiencies and prevent erosion of tax bases.

He stressed that for countries such as Nigeria, the benefits of digital tax transformation can only be fully realised through sustained investment in technology, coherent policy alignment and strengthened institutional capacity.

“The future of taxation lies in systems that are digital, transparent, real-time and built on global cooperation”, he  argued.