Enhancing Nigeria’s Revenue and Tax System with AI Technology
The global trend has been revenue generation, which is the receipt of funds by a government or business. Government revenue encompasses money received from taxation, fees, fines, inter-governmental grants or transfers, securities sales, mineral or resource rights, and sales. This revenue finances government expenditures, including salaries and capital projects.
A surplus budget occurs when government revenue exceeds expenditure, while a budget deficit arises when expenditure surpasses revenue. Companies also rely on revenue, primarily earned from product or service sales, to determine profit or loss.
For many governments, taxation is the dominant revenue source. Taxation involves levying taxes on income, earnings, or purchases. In Nigeria, the tax system includes tax laws, policy, and administration, contributing to national well-being through improved policies and appropriate tax revenue utilization. The tax system aims to generate stable revenue for projects, investment, economic stabilization, and distributive equity, fostering economic growth (Presidential Committee on National Tax Policy, 2008).
Nigeria’s tax revenue comes from individual income taxes, corporate taxes, customs and excise duties, sales taxes, withholding taxes, and value-added taxes. The Federal, State, and Local Governments enforce taxation per the Taxes and Levies Law, 1998. The Federal Inland Revenue Service (FIRS), chaired by a presidential appointee approved by the Senate, oversees the tax system. States and the Federal Capital Territory have their Internal Revenue Services (IRS) or agencies, while the 774 Local Governments have revenue departments. The FIRS promotes voluntary compliance with tax laws, providing taxpayer information and assistance, and enforcing laws as necessary.
Agencies help taxpayers pay correct taxes, maintaining databases to identify income sources. However, tax loss due to negligence, evasion, avoidance, record falsification, inefficiency, and leakages is significant (Adegbite & Fasina, 2019). High evasion and avoidance rates reduce government revenue, limiting expenditure and economic activities, and impeding growth.
Governments legislate to ensure accurate taxpayer returns, contributing significantly to revenue and GDP. Technology, especially AI, can revolutionize tax filing, making it faster, easier, and more accurate. Advanced AI, machine learning, and digital transformation enable ‘compliance-by-design’ approaches. The Finance Act 2020 and Sections 25 of the FIRS Establishment Act empower the FIRS to automate tax processes, including assessment, collection, and information gathering.
Amendments in the Finance Act 2021 allow FIRS to use third-party technology for tax administration automation. The e-tax portal, TaxPro Max, launched in 2021, facilitates online tax payments, returns, tax clearance certificates, and credits for withholding tax and other credits. This system aims to ease compliance and improve services, making tax processes more convenient for stakeholders.
Effective automation can significantly enhance revenue collection. AI, with its advanced data processing, can create more efficient tax systems. Intelligent Automation (IA) and AI can help governments extract valuable insights from data to achieve objectives. AI includes algorithms, machine learning models, generative AI, neural networks, robotics, and design principles, imitating human thinking to solve problems.
AI analyzes content to make predictions and prescribe actions. AI-driven virtual assistants and predictive modeling are increasingly used for tax fraud detection and compliance efficiency. The IRS in the US, and tax authorities in countries like Malta, the UK, Canada, the Netherlands, and Ireland, use AI to compare wealth and tax returns. France uses satellite images for local direct taxes, and Italy’s VeRa algorithm detects tax evasion by comparing various financial records.
Countries leverage AI to identify evasion patterns, predict non-compliance, and allocate auditing resources effectively. AI technologies like ChatGPT help understand and generate content, though accuracy is not guaranteed, posing risks of faulty reporting and algorithmic bias. Tax professionals must build AI proficiency to ensure data safety, privacy, and ethical use.
AI and automation promise a bright future for tax preparation, enabling Nigerian tax agencies to deliver efficient, accurate, and personalized services. These technologies simplify cryptocurrency tax compliance, automatically compute gains or losses, and generate tax reports. By embracing automation and delivering value, Nigeria’s tax system can enhance revenue for growth and development.
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