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Automation and Tax Compliance: Empirical Evidence from Nigeria

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American Journal of Theoretical and Applied Business
2020; X(X): XX-XX

doi: 10.11648/j.XXXX.2020XXXX.XX
ISSN: 2469-7834 (Print); ISSN: 2469-7842 (Online)

Automation and Tax Compliance: Empirical Evidence from

Nigeria
Joy Irefe-Esema, Babatunde Akinmade*
Department of Accounting, Finance and Economics, Bournemouth University, Bournemouth, United Kingdom

Email address:
s5130965@bournemouth.ac.uk (J. Irefe-Esema), bakinmade@bournemouth.ac.uk (B. Akinmade)
*Corresponding author

To cite this article:

Joy Irefe-Esema, Babatunde Akinmade. Automation and Tax Compliance: Empirical Evidence from Nigeria. American Journal of
Theoretical and Applied Business. Special Issue: Future High-Tech Applications in Human Life. Vol. x, No. x, 2020, pp. x-x.
doi: 10.11648/j.xxx.xxxxxxxx.xx

Received: MM DD, 2020; Accepted: MM DD, 2020; Published: MM DD, 2020

Abstract: This paper examines the impact of tax automation on tax compliance in Nigeria using the tax compliance metrics
(registration, filling, reporting and payments) of the Organization of Economic Community Development. This paper describes
the Nigerian e-tax system as semi-automated, considering that numerous manual processes are involved in the registration, filing,
reporting and payment of taxes. Adopting a structured in-depth interview, administered to tax professionals, comprising tax
consultants and staff of the Nigerian Federal Inland Revenue Service (FIRS), we find that automation significantly increased tax
registration and payment compliance. However, filing and reporting compliance showed no positive response. Our analysis
mapped the response of “filling and reporting compliance” variables to technical barriers and the sketchy outlook of E-taxation
in Nigeria. We highlight the procedural effectiveness of tax automation in reducing evasion and corrupt practices among tax
administrators, given outright elimination of physical contact between tax officials and taxpayers. We find that tax automation
improved the registration and payment compliance in Nigeria, but not the filing and reporting compliance due to usage
complexity of the electronic platform. The findings in this paper emphasize the prospect of attaining optimum compliance level
in the Nigerian tax system, and a prompt to policymakers and tax authorities (FIRS) to consider implementing full tax automation.

Keywords: Tax automation, Tax compliance, Nigeria, Electronic payments, Revenue

every $100 collected from taxpayers [15]. While the

1. Introduction
E-taxation emerged in the 1980s, within the wider concept of
tax automation, to facilitate tax refunds and first adopted by the
Internal Revenue Service (IRS) in the United States of America
(USA) [64]. Remarkably, automation has become fundamental in
modern economies, motivated by the significant impact of
electronic computation to revenue collection. Automation
involves the use of control systems and information technologies
to lessen the necessity for human work in the production of goods
and services [42]. Likewise, tax automation bridges the gap
between tax officials and taxpayers by minimizing the scope for
negotiation in tax registration, filing and payments [32]. Thus, a
vital strategy for realizing efficiency in tax administration.
In developed nations like the USA, tax automation has
substantially improved tax administration efficiency such that
the Inland Revenue Service (IRS) spends as low as $0.34 for
developed nations have continued to benefit from tax
automation, incessantly improving tax administration systems
to match modern digital technologies, the story is not the same
in a developing country like Nigeria. It is hardly surprising that
the tax-to-GDP ratio declined from 7% in 2013 to 6% in 2017,
falling below the standard 15% benchmark across lower-
middle-income countries [1]. The Nigerian Federal Inland
Revenue Service (FIRS) introduced electronic taxation in
2015 through the E-payment solutions and in alliance with the
Nigerian Inter-Bank Settlement System - NIBSS [28]. The
idea earlier presented through the introduction of the Tax
Identification Number (TIN) in 2008, created for the storage
of information on taxpayers and to enable real-time
information sharing and data interchange.
The Nigerian e-tax system is best described as semi-
automated, considering that numerous manual processes are
2 Joy Irefe-Esema and Babatunde Akinmade: Automation and Tax Compliance: Empirical Evidence from Nigeria
involved in the registration, filing, reporting and payment of
taxes. The challenges of the semi-automated tax systems
amongst other factors contribute significantly to the low
compliance level in Nigeria. Tax Compliance (TC) defined as
taxpayers’ willingness and other taxable entities to pay taxes
willingly, embracing the registration, filling, reporting and
payment operations, the tax compliance metrics identified by
the Organization of Economic and Community Development
(OECD) [20] . Voluntary compliance, however, is only a
hallucination in Nigeria, as explained by the continuous fall in
Nigeria’s tax revenue [33]. A rationale for the implementation
of several measures to improve compliance level, the most
recent being the Voluntary Asset and Income Declaration
Scheme (VAIDS) which created a window for defaulting
taxpayers to pay accrued taxes without incurring penalties [22].
Although, VAIDS improved collections by N35.7 billion [22]
but not voluntary tax compliance outrightly. Hence, the need for
tax automation, which has proven to effectively enhance Tax
Compliance in developed economies.
Tax automation in Nigeria has been a topic of debate for tax
authorities, policymakers, tax consultants, researchers, and the
public. The reluctance of FIRS to embrace full autonomation is
anchored on the huge capital investment required in Information
and Communications Technology (ICT). This line of argument
is puzzling, triggering a question as to whether policymakers are
unaware of tax automation’s positive effect on tax revenue and
compliance or it has been perceived that the benefits could not
be realised in the case of Nigeria. This paper, therefore, aims to
investigate the impact of tax automation on Tax Compliance
(TC) in Nigeria. Also, this paper examines the capability of tax
automation in reducing or eliminating tax evasion and tax
corruption in Nigeria.
The section that follows reviews the literature review on tax
automation and tax compliance. Section three describes the
research methodology employed, while section four presents
the discussion of findings and analysis. Lastly, Section five is
the conclusion, offers recommendations to policymakers and
direction of future research.
2. Literature Review
2.1. Concept of Tax Compliance
‘Tax Compliance’ (TC) has attracted much discussion in the
tax literature. According to [36], TC refers to taxpayers’ “act of
filing their tax returns, declaring all taxable income accurately,
and disbursing all payable taxes within the stipulated period
without having to wait for follow-up actions from the relevant
tax authorities”. In effect, TC relates to taxpayers’ attitude
towards remitting and filing tax returns within the wider context
of taxpayer’s tax liabilities. This procedural framework is
decomposed into registration, filing, reporting, and payment
compliance. Non-compliance would therefore mean taxpayer’s
failure to embrace the procedural elements of OECD framework
despite the complications or even ambiguities in the process of
tax administration or tax legislation ([16]; and [19]. Non-
compliance can also be the failure of taxpayers to accurately
report actual income, make claims for rebates and deductions
and pay the correct amount of tax within the time frame to the
tax authority [20]. This viewpoint aggregates [21]
classifications which identified the possibility of unintentional
behaviour towards tax procedures. While taxpayer’s deliberate
motive to evade tax through falsification of reports, under-
declaration of income or overstatement of expenses could count
as non-compliance, certain behaviours relating to errors while
filing and reporting tax return are also reported. Needless to say,
that intentional tax non-compliance (tax evasion) accounts for
the prevalent low tax compliance in developing countries like
Nigeria [8]
2.2. OECD Tax Compliance Metrics
2.2.1. Registration Compliance
This requires the new and existing taxpayers and other taxable
entities to register with the relevant tax authority and accurately
file tax returns [32]. Absolute registration compliance is difficult
to attain because the relevant tax authorities sometimes find it
challenging to capture all taxpayers and other taxable entities in
their tax-web. This situation is worse for developing nations
where the relevant tax authorities do not have all legitimate
taxpayers registered in their database. This reality motivated the
introduction of the Tax Identification Number (TIN) in Nigeria
[12]. The TIN replaced the paper registration and was envisioned
to increase tax revenue as it captures more taxpayers
electronically. Thus, bringing proximity between taxpayers
already in the tax net and those registered with the Corporate
Affairs Commission of Nigeria - CAC ([12]; [30]; [2]; [11]).
Therefore, TIN is a viable method through which more
individuals and companies can be brought into the tax net.
Before the introduction of TIN in Nigeria, there was a high
rate of registration non-compliance with as much as 75% of
duly registered companies not registered for tax purposes [10].
The increase in aggregate tax revenue following the
implementation of TIN demonstrates the importance of TIN in
Nigeria. Figure 1 below shows Nigeria’s non- oil tax revenue
from 2000 – 2015 which represents the pre and post era of TIN.
Source: Central Bank of Nigeria (2016)
Figure 1. Analysis of non- oil tax revenue in Nigeria (2000-2015).
Figure 1 above shows a steady increase in revenue
collection from 2008 till 2014, which can be attributed to the
introduction of TIN in 2008 amongst other factors. Indeed, the
level of registration compliance increased following the
automation of the registration process.
 American Journal of Theoretical and Applied Business 2020; X(X): XX-XX
2.2.2. Filling and Reporting Compliance
It is generally believed that for taxpayers and other taxable
entities to ensure TC, tax liabilities relative to income earnings
are timely and correctly filed to the relevant tax authorities.
Reporting-compliance is similar to filing compliance, which
according to [14] requires that taxpayers and taxable entities
must file tax returns within the period and the returns must
align with the expected tax liability, which should conform
with the tax laws.
In Nigeria, the taxable period in a year runs from 1st January
to 31st December and taxpayers are expected to register and
file their tax returns with audited accounts, tax computations
and evidence of payment to the Federal Inland Revenue
Service (FIRS) within the period of 6months of their financial
year-end on a self- assessment basis or 18months for the 1st set
of accounts upon incorporation (the earliest). There is a high
rate of filing& reporting non- compliance as much as 65% of
those already registered not filing returns nor paying taxes [13].
Unlike e-registration, which commenced in 2008, e-filing was
introduced in Nigeria in 2015 through the Integrated Tax
administration system. (ITAS) The FIRS introduced ITAS to
minimize the need for physical interaction between FIRS and
taxpayers and improve tax administration efficiency [13].
More of e- filing will be discussed in further details.
2.2.3. Payment Compliance
This refers to the ability of the taxpayers both individual and
corporate entities to remit all tax obligations promptly.
According to [39]; [38]; [37] and [35], payment compliance is
one of the fundamental reasons for tax automation. [31] opines
that payment- compliance leads to a momentous amount of tax
remittance of the Inland Revenue Service (IRS). In Nigeria,
while filing returns, full or partial payment is expected to be
made by taxpayers and failure to pay within the stipulated time
constitutes payment non- compliance.
In 2013, the FIRS introduced a form of payment automation
via the pay direct platform through commercial banks in
collaboration with the Nigerian Inter-Bank Settlement System
(NIBBS) and the objective was to create an enabling
environment for the easy payment of taxes [28]. However, this
was not complete automation of the payment process as
taxpayers needed to go to the banks to make payments, but in
2015, alongside e- filing, e- payment was introduced [13]. E-
payment enables taxpayers to pay for taxes from the comfort
of their homes or offices and receipts are generated within 48
hours. The e-payment provides a substantial improvement for
compliance and an increase in the overall revenue collection
for the FIRS.
2.3. Theoretical Framework
The philosophy underlying of the Basic Evasion Model
(BEM) of tax compliance is that the taxpayer’s decision
depends on the likelihood of being caught and the penalty that
follows indictment. The BEM hinges taxpayers’ compliance
on the sensitivity of relevant tax authority to discover tax
evasion. Fundamentally, the BEM of tax compliance provides
tax administrators with a theoretical rationalization to adopt
3
tax audit, penalties, and court trials to deter non-compliance.
However, BEM fails to explain the possible outlook of tax-
compliance in the presence of low audit rates and trivial
sanctions.
2.4. Empirical Literature Review on Tax compliance and
Automation
[22] built on the Economic Deterrence Model to assess the
challenges and prospects of tax compliance in Nigeria. The
study found that few organizations, which was about 120,000
out of 440,000 were tax compliant, representing about 27.3%
of the registered corporate taxpayers. Although the prospects
and challenges of tax compliance in Nigeria were assessed, no
attempt was made to analyse if tax automation will provide a
pathway towards resolving the challenges of tax compliance
in Nigeria. Using the benefit and stakeholders’ theories, [35]
examine the effects of e-filing on tax compliance in Harare,
Zimbabwe and find that e-filing positively correlates with tax
compliance. However, the study only assessed the correlation
between e-tax and tax compliance but failed to address the
magnitude of the effect. In Kenya, [5] find that online tax filing
and monitoring activities contribute significantly to revenue
generation, but the study failed to evaluate the level of tax
compliance in Kenya. In Nigeria, [27] ascertained the extent
to which tax automation averts tax evasion and corrupt
practices by taxpayers and tax officials. The study revealed
that tax automation enhances internally generated revenue and
diminish tax evasion. This is consistent with the findings in
[24] which assessed tax revenue automation in Kiambu county,
Kenya. The descriptive survey design revealed an
improvement in revenue realization and gritty visibility of
county tax revenues and trends.
2.5. Tax Automation in Nigeria
In Nigeria, electronic taxation is at an early stage and still
evolving. Its introduction was prompted after the reports of the
international monetary fund (IMF) fiscal affairs division in
2005/2006, which suggested the implementation of an
Integrated Tax Administration System -ITAS [26]. In 2010, the
FIRS gained approval by the Federal Executive Council to
procure, install and implement the ITAS [40]. The aim of ITAS
was the automation and restructuring of the FIRS tax processes,
the procurement, installation, and deployment of the standard
integrated government tax administration (SIGTAS) and
hardware facility [40]. However, there is no legislative
framework for the operation of e-taxation in Nigeria [13] but the
National Tax Policy (NTP) supports the use of technology in the
administration of taxes.
In 2015, the electronic payment of taxes was introduced in
alliance with the Nigeria Inter-Bank Settlement System (NIBSS)
[28]. In June 2017, the FIRS re-structured its electronic -tax
system to fully operate and introduced several other e-services [10]
which include e- stamp duties, e- registration, e-tax payment, e-
receipt, e-tax clearance certificate and e-filing, This achievement
led to Nigeria moving up 11 places in terms of ease of paying
taxes and moved up 24 places in the World Bank global ranking
4 Joy Irefe-Esema and Babatunde Akinmade: Automation and Tax Compliance: Empirical Evidence from Nigeria
of ease of doing business and Nigeria moved placed from 169 in
2017 to 124 in 2018 [13]. Tax administration is challenging but
vital for revenue generation, improved standard of living and
economic development of any nation. According [39] to achieve
efficiency in tax administration, the automated system-based
approach is imperative because tax automation brings about
efficiency in revenue collection, tax clearance and tax costs.
E-filing requires internet access. However, Nigeria is
plagued with interrupted internet access, high cost of internet
data and poor internet access in rural areas. While
implementing tax automation, there is a need for a constant
power supply to avoid the interruption of the E-filing process
[5]. The FIRS acknowledges this challenge on their website,
stating that “for any temporary suspension of filing either due
to network or power failure, the uncompleted filing process
goes into the state of “in progress” which can be completed
later. This is a serious challenge which could lead to late filing
penalties, for instance, if a taxpayer is trying to file on the last
due date and power supply is interrupted until the next day, it,
therefore, means the taxpayer has filed late and will be due to
pay late filing penalties. The barriers to an effective E-filing is
illustrated in Figure 2 below:
Source: Author’s Construction based on [28]
Figure 2. Challenges of e-filling in Nigeria.
Electronic taxation requires computer literacy. In Nigeria,
there is a high rate of illiteracy which UNESCO stated in 2015
to be about 65 million of the population [34]. Therefore, the
level of computer literacy is expected to be lower since it is
possible to be educated without computer literacy in Nigeria.
Consequently, taxpayers who are not computer literate will
need to employ tax consultants to submit tax returns on their
behalf, which comes with an additional cost for the taxpayer,
making e- filing an expensive option to file tax returns.
3. Methodology
This paper follows the methodology in [4]; [38]; [41]. The
qualitative instrument is used for data collection to understand
the perception of participants and make an inference by
comparing the findings obtained via diverse instruments. We
use the in-depth interviews (IDIs) via a semi-structured
telephonic as suggested in [17]. Since tax automation is just
gaining grounds in Nigeria, questions were designed to
understand the extent of usage and the challenges of the E-
taxation in Nigeria. The questions (see appendix I) were
mostly open-ended to liberally explore the interviewee’s
opinion in a conversational manner. We use the IDIs guide to
obtain detailed and relevant information from the participants
- FIRS employees and tax consultants in Abuja, Nigeria. Also,
the interview process was kept transparent, sustaining ethical
practices such as obtaining informed consent, confidentiality,
and privacy of information [6]. Due to the outbreak of
COVID-19, we employed WhatsApp video to conduct the
three phases of the interview, as described in Table 1 below.
Table 1. Interview Phase and Process.
Phase Process
Participants were contacted and a brief introduction about
the research and purpose and objectives was given.
Participant information sheet and consent form were sent
Pre-
to all participants via email and was signed and returned.
Interview
Date and time for the interview were scheduled.
Some interviews were rescheduled due to failure of
interviewees to turn up and poor internet connection.
The interview was done via WhatsApp audio
At the start of the interview, participants were appreciated,
and their confidentiality was reassured. They were also
reminded that participation is voluntary [6] .
During Permission to record was asked, and when granted the
Interview interview was recorded.
The questions were from the interview guide.
At the end of the interview, participants were asked if they
had any questions or further contributions which was
noted.
The interview lasted for an average of 32 minutes.
The voice recording was saved on a recording device,
Post- which was transcribed manually and analyzed.
Interview The audio clip was deleted from the researcher’s device
after transcribing for confidentiality and anonymity.
Source: Author’s Compilation, 2020
The thematic and descriptive method is used to analyse the
qualitative data obtained. The analysis of qualitative data started
with editing and transcribing of the raw data. The transcripts
from IDIs were read and coded, illustrative quotes, statements,
ideas were established and organized under diverse themes,
which provided the basis for further interpretation of the results.
Based on this, each theme was discussed, and relevant
illustrative quotes extracted to corroborate extant literature. The
analysed qualitative data was used to validate the study’s
research questions in the aspect of the impact of tax automation
on tax compliance in areas of registration, filling, reporting and
payment. Challenges associated with tax automation and the
extent tax automation reduces tax evasion in Nigeria were also
validated. Ten (10) participants comprising of five (5) FIRS staff
and five (5) tax consultants were interviewed. During the
interview, we encountered poor internet connection causing
some interviews to be retaken. Also, some participants declined
 American Journal of Theoretical and Applied Business 2020; X(X): XX-XX 5

the interview at the last minute, causing entry of new participant list of contractors and the FIRS can identify contractors not
which took a considerable amount of time. registered; and immediately bring them into the tax net.
This can only be done through automation” (FIRS Staff)
4. Discussion of Findings Table 3 below substantiates the above responses, regarding
the ability of tax automation to boost registration compliance
The sampled participants were staff of the FIRS and tax [2]
consultant’s resident in Abuja, Nigeria. Overall, ten
participants were selected based on their level of experience Table 3. VAT Automation Programme.
and knowledge on the subject matter. The FIRS staff are those No of Taxpayers before No of Taxpayers after
directly involved in E-filing and E-payment, interacting daily Automation (2017) Automation (2018)
with taxpayers, while the tax consultants are professionals 9,574 59,350
who regularly file returns for taxpayers. The participants, Source: FIRS, Proshare Research, 2020
therefore, have an adequate and informed knowledge of E-
taxation. For ethical consideration, we maintain the From the table above, registered taxpayers for VAT
participants' anonymity, illustrated in Table 2 below, such that purposes, increased by over 100% within the short period tax
names of IDI participants were not revealed but two broad automation in Nigeria. It, therefore, suggests that with full tax
classifications were used for identification, given as ‘Tax automation, there will be a significant increase in registration
consultant’ and ‘FIRS staff’. compliance. On the enlightenment of e- taxation, responses
were divergent. The tax officials claimed that FIRS provide
Table 2. Distribution of IDI Participants of the Study. enough enlightenment through television broadcast, radio
Class of Participants Gender Timing of IDI Region/Location stations, pamphlets distribution and taxpayer education
Tax Consultant Male 30 minutes Utako, Abuja services, while tax consultants stated that taxpayers are not
Tax Consultant Male 28 minutes Garki, Abuja fully informed about this e-services.
Tax Consultant Female 30 minutes Wuse, Abuja “No, taxpayers are not properly aware when it comes to the
Tax Consultant Male 25 minutes Utako, Abuja
Tax Consultant Male 26 minutes Garki, Abuja e-platform of the FIRS” (Tax Consultant)
Tax Consultant Male 35 minutes Asokoro, Abuja “Taxpayers are fully aware and enlightened about the e-
FIRS Staff Female 30 minutes Wuse, Abuja services. Information is available on the FIRS website and
FIRS Staff Male 50 minutes Garki, Abuja FIRS publications are always on radio and TV and
FIRS Staff Male 27 minutes Wuse, Abuja pamphlets are regularly distributed and available in
FIRS Staff Male 35 minutes Garki, Abuja.
various tax offices across the nation”. (FIRS Staff)
Source: Author’s Construction As a follow up to the communication channels, participants
were asked if the level of information on e-taxation is enough
Majority of the participants shared their understanding of e- and what measures should be taken by FIRS to increase the
registration and tax compliance stating unanimously that e- level of awareness.
registration will impact on tax compliance positively in Currently, the information level on e-taxation is poor. A lot
Nigeria and most participants appeared to have a fundamental of Nigerians are not aware of the various e-services
knowledge of e-taxation and registration compliance. especially those in the rural areas” (Tax Consultant)
“E -taxation will create an avenue where more taxpayers No, not all, taxpayers are not fully informed. FIRS can do
can come into the tax net” (Tax Consultants). more in media, newspapers publication, radio stations,
Furthermore, when enquired on if e-taxation will increase television, and billboards. Calling for public symposiums,
the number of registered taxpayers in Nigeria, majority of the inviting taxpayers to participate and have synergy between
responses were affirmative. FIRS and tax consultants (Tax Consultant)
“Yes, it will greatly, since automation, taxpayer’s database We find that tax automation is capable, and has increased
has expanded and those running away from registration are registration compliance in Nigeria, but the FIRS needs to do
captured, Overall, automation has led to the development more in terms of creating more awareness on e-services so that
of a robust database and thus, increased registration the awareness gets to Grassroot taxpayers. E-filing is the
compliance” (FIRS Staff). heartbeat of tax automation and is relatively a new concept in
With regards to identifying taxpayers not in the tax net the administration of taxes in Nigeria, hence accompanied by
through automation, participants responses were like that a lot of challenges. According to [27], filling and reporting
above, supporting the ability of tax automation in increasing compliance is a major issue for tax administrators. To capture
registration compliance, by both bringing in new taxpayers the true picture of the state of e-filing in Nigeria, and for the
into the tax net and detecting evading taxpayers. filing and reporting compliance to be correctly assessed, we
“It will assist in identifying legitimate taxpayers not in the examine the perspective of the tax consultants who represent
tax net because taxpayer’s information will become the opinion of taxpayers and the perspective of the FIRS
available online.” (Tax Consultant) officials who are the providers of the E-filing platform.
Yes, it will, with automation, taxpayers who pay withholding Although both categories of participants are greatly aware of
tax (WHT), upload their tax schedules which comprise of a the benefit E-filing but acknowledge that the challenges
6 Joy Irefe-Esema and Babatunde Akinmade: Automation and Tax Compliance: Empirical Evidence from Nigeria
currently experienced far outweigh the benefits.
While all participants maintained a positive viewpoint
regarding the existence of the e-filing platform, all the
participants displayed their aversion of e-filing platform and
described their experience as horrible, poor, and discouraging.
See comments below:
“My experience with the use of e-filing platform was
horrible, because of server downtime. So, I don’t currently
file online.” (Tax Consultant)
“My experience was not pleasant at all, there is always
network failure. If FIRS is not ready for e-filing, they should
not introduce it, because it is very discouraging” (Tax
Consultant)
Tax consultants also complained that the E-platform is
semi-automated, and it has created more trouble filing rather
than alleviating. Because they need to submit the hard copies
of financial statements, bank statements and any other
documents required while filing online simultaneously.
“The facility is not working well, the FIRS staff themselves
do not believe in the system. The most annoying aspect is
that you are asked to file online and requested to bring
statements of accounts, bank statements and other
documents physically. So, what is the essence of e–filing?
because in the end, the e-filing, which is meant to be a relief,
becomes an additional workload for taxpayers”. (Tax
Consultant)
From the viewpoint of the FIRS staff, the challenges
associated with E-filing relate to changes in management, the
road- map plan for E-filing and the perception of both
taxpayers and staff.
FIRS road map for e- filing
“The road map for e- filing insisted that e- filing becomes
mandatory for the large and medium taxpayers before it
gets to the small and micro taxpayers. Meanwhile, the
percentage of the large and the medium taxpayers is very
small accounting for only 10% of registered taxpayers. So,
the problem is most taxpayers who are the small and micro-
scale taxpayers are not involved in the process. (FIRS Staff)
Changes in Management
“The project in Nigeria normally suffers set back from
changes in administration, since the introduction of e- filing
in Nigeria, the management of the FIRS has not been stable
and has resulted to what I call slow adoption. If
management had been stable, e- taxation would have been
more effective today.” (FIRS Staff)
Perception of Taxpayers
“Some taxpayers are not interested in the e- filing platforms
and do not believe in the system. So, they continue to file
manually.”. (FIRS Staff)
Understanding the conditions for E-taxation effectiveness is
fundamental [42]. We asked participants whether special IT
skills are required for E-filing. Their responses varied, with the
majority saying that special IT skills are not needed, adjudging
that basic computer knowledge is sufficient. Overall, we find
that no special IT skills are required for online filing. However,
the major challenge is the level of computer literacy in Nigeria,
as most taxpayers do not possess basic computer knowledge,
making E-filing generally challenging.
Furthermore, participants were asked if E-filing could
reduce errors in tax computations and timing used for filing
returns. The opinion of participants varied, with some
affirmative and negative responses.
“It will help because the e-platform enables an automatic
computation of taxes due after inputting information
correctly, so it may help to reduce errors and will greatly
maximize the overall timing associated with paper filing”
(Tax Consultant)
“In terms of timing, e- filing will reduce the overall timing,
however, in terms of error reduction, I am not sure that -
filing will have any impact” (Tax Consultant)
The impact of E-filing on filing and reporting compliance is
a major aspect to consider. We examine whether E-filing has
improved the number of regular filers and brought in new
filers into the tax net. Unfortunately, the responses from
participants do not reflect in any way how e-filing has
improved filing and reporting compliance. There was a
correlated response between the taxpayers and the FIRS
officials confirming that e- filing only had a little or no
significant effect on filing compliance.
“In my opinion, the e-filing platform has not had any major
increase in the number of regular filers” (Tax Consultant)
“There has been no significant increase in the number of
filers because it is still the same taxpayers that would have
filed manually that still file electronically. However, there
has been a slight increase in the number of electronic filers”.
(FIRS, Staff)
The preference for E-filing to manual filing was inquired
also and the majority of the participants opted for the manual
filing because of the challenges experienced in E-filing.
Although they would have preferred the e-filing if challenges
were alleviated. Overall, tax automation currently, does not
improve filing and reporting compliance in Nigeria. Even
though, it can improve compliance, if the platform was
working efficiently because taxpayers will be encouraged to
file timely with ease from the comfort of their offices and
homes. Unfortunately, the current state of the e-filing platform
is discouraging, making filing more cumbersome for taxpayers.
The findings above correlate with the opinion of [27] stating
that filling and reporting compliance is a major issue for tax
administrators.
Most participants responded that e-payment would increase
the collection of taxes from taxpayers, however, expressed
concerns on the performance of the platform, which often
delays making taxpayers resort to bank payments.
“E- payment will improve payment compliance but
sometimes we experience challenges with the e-payment
platform. (Tax Consultant)
“Yes, it will, but taxpayers encounter challenges using this
platform. E-payment has improved tax collection so far and
has reduced the instances of late payment penalties. During
COVID19 period, taxpayers could not go the bank but were
able to make payment for taxes” (FIRS Staff)
Tax evasion is one of the prominent reasons for low tax
compliance in developing countries. [8] assessed the overall
 American Journal of Theoretical and Applied Business 2020; X(X): XX-XX
level of tax revenue lost in developing countries due to tax
evasion to be approximately US $385 billion per year. As a
result, the FIRS engage in frequent tax audits and monitoring
exercises. We assessed if tax automation will reduce tax
evasion and the frequency of tax audits. The responses from
participants varied, with a different opinion from the tax
consultants and the FIRS staff. However, the majority of the
participants asserted that automating will significantly reduce
tax evasion in Nigeria and close the room for any tax leakage.
A few others claimed that tax automation will not stop the
intention of tax evaders, as they will continue to evade with or
without tax automation.
“Yes, automation will reduce evasion significantly, with full
automation, all the parameters that taxpayers use to evade
taxes will be blocked because the information will be in the
public knowledge” (Tax Consultant)
No, I do not think so; a tax evader will continue to be a tax
evader. An average Nigerian does not like to pay tax. I do
not think that electronic taxation will help to reduce tax
evasion. By the way, e- taxation is currently optional for
taxpayers” (FIRS Staff)
Source: Author’s Construction based on OECD (2016)
Figure 3. Understanding Participants’ Perception of OECD Tax Compliance Metrics.
All participants confirmed that tax automation would
increase registration compliance supporting the assertions of
[12] and [30] that the number of registered taxpayers in
Nigeria has increased since the introduction of e-taxation.
Nevertheless, participants suggested that TIN should be linked
to the bank verification numbers (BVN) of taxpayers in
Nigeria. In that way, the tax authority will have access to a
broader database because every single individual of a taxable
age operates a bank account in Nigeria and it will flag up
taxpayers with bank transactions who are not in the tax net.
On the enlightenment of taxpayers on the FIRS e-services, the
views of participants suggest that taxpayers are not primed on the
e-tax products. While the FIRS officials claimed that information
about e-services is well disseminated to taxpayers, tax consultants
who represent the opinions of the taxpayer’s refuted, saying that
the information level on e-services is very low have not got to the
grassroots taxpayers. The shared views of participants for
enhancing enlightenment include emails, text messages, bulletins,
flyers, public symposium, and regular meetings with all
stakeholders.
[12] assert that e-filling and reporting is a vital tax
compliance metrics to fulfil because, without it, payment
compliance cannot be attained. E-filling is one of the latest
developments of the FIRS and is a major issue for tax
administrators to control [27]. Majority of the participants
confirmed the presence of e-filling but displayed much
7
For the frequency of tax audit and monitoring exercises,
most participants supported the opinion that tax automation
will reduce the frequent audit and monitoring exercise by the
FIRS, which will automatically save the FIRS the cost
associated with undertaking these exercises. Some participants,
however, refuted, saying that tax audit exercises will continue
even with the tax automation, as the audit exercises are usually
a routine exercise undertaken by tax officials on every
taxpayer within an interval of 3years.
“Typically, in a tax office, there are a series of audit exercise,
namely desk examination, spot check, national audit, zonal
audit, VAT monitoring etc. With e- taxation, all these
unnecessary checks can be reduced to only a single audit in
a period of 3years.”. (Tax Consultant)
“I do not think so, because for now, the automation is on a
trial basis, and not up to 20% of taxpayers have currently
embraced tax automation. So, the audit and monitoring
exercises will continue.”. (FIRS Staff)
Complete tax compliance is shown in Figure 3 below,
illustrative of the OECD tax compliance metrics.
displeasure with the platform describing it as poor, horrible,
and not pleasant; this has hindered e- filing as the preferences
for taxpayers.
Following the views of participants on the impact of e-
filing on tax compliance, there is no positive link on e-filing
to tax compliance in Nigeria. Although, e filling and reporting
should naturally increase tax compliance if the system was
working efficiently, unfortunately, views from participants
shows that the number of filers has not increased since the
introduction of e- filing. So, there has been no significant
impact of e- filing on tax compliance, unlike the registration
compliance which was significantly improved because of
automation.
The motivation for bringing all taxpayers in the tax net is to
ensure that all taxpayers comply with tax payment.
Participants’ views revealed that tax automation increases the
collection of taxes. This finding corroborates with the views
of [18] that e-tax payment increases the collection of taxes
from taxpayers. However, some participants complained about
the challenges encountered via e- payment.
Overall, the introduction of tax automation in Nigeria has
contributed to the increase of registration and payment
compliance, but not filing and reporting compliance and this will
result to a variance in the number of registered taxpayers and
regular filers. Although payment compliance seems to be closely
linked with filing and reporting compliance, it can still be
8 Joy Irefe-Esema and Babatunde Akinmade: Automation and Tax Compliance: Empirical Evidence from Nigeria
separated. In Nigeria, returns are filed with partial or full payment
of taxes, with e-payment, taxpayers are encouraged to make more
payments for taxes from their comfort locations.
The drive for tax automation also reflects upon the
challenges it poses for taxpayers. The e-tax system is
confronted with numerous challenges, which according to
Momoh [22]; and [3] contributes to the low level of tax
compliance in Nigeria. Participants are of the view that the
most obvious challenge facing tax automation is the
performance of the e- platform. Conceivably, this has shrunk
tax returns; this notion is re-enforced by the assertion of [14]
that when taxpayers encounter stern setback using the e-tax
platform, tax revenue is hampered.
[30] stated that tax automation reduces evasion. There were
conflicting perceptions as some participants acknowledged
that tax automation does not reduce tax evasion nor the
frequency of audit exercises, others were in the affirmative.
Intuitively, tax automation will impact more on monitoring
exercises than audit since automation will flag suspicious
taxpayers who can then be followed up with a monitoring
exercise rather than monitoring all taxpayers. As for the audit,
the FIRS establishment Act 2007, permits the FIRS, to audit
taxpayers every three years and six years for investigation
exercises, So, tax automation may not directly impact on a tax
audit.
5. Conclusion and Recommendation
This paper established the nexus between tax automation
and tax compliance in Nigeria and discovered the numerous
challenges of the FIRS e-platform, which has been extensively
discussed in section four. Therefore, to overcome these
challenges, the FIRS should heavily invest in ICT, and upgrade
the current e- platform to accommodate more taxpayers filing
simultaneously. It was evident that FIRS had an internal
problem of frequent change of management which terminate
plans and hampers development.
The FIRS will need to do more in terms of enlightenment of e-
services to taxpayers especially the small and micro taxpayers and
taxpayer who reside in remote locations with poor or no internet
connection. They also need to get tax consultants more involved
in their processes, organize sensitization programs for taxpayers,
and provide regular training to staff to ensure competency in the
use of the e-tax platform. The Tax authorities must take into
cognizance, the need to make the e-tax process simple, easy and
user friendly considering the ICT knowledge deficiency of
average Nigerians.
The study found that tax automation will significantly
improve tax compliance in Nigeria, if well- implemented and
the current challenges abated. Since e- taxation is not yet
enforced in Nigeria, one way to improve participation is to
introduce incentives to taxpayers who file and pay online,
thereby making e- taxation more attractive. For example, an
extension of the filing date, discounts in e- payments etc. The
best way, however, is to make e- taxation compulsory, but this
may not be practical in Nigeria currently, as the tax authority
will stand a chance of losing revenue. Given the sample size
and the methodology used in this paper, we believe that
generalisation of findings would be more appropriate using a
mixed method. Furthermore, our analysis reveals that e-
taxation has not improved filing and reporting compliance in
Nigeria, analysis based on mixed methodology might yield a
different result and should be considered in future studies.
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