Posted Mon, Nov 18, 2024 2:52 PM

Leveraging Artificial Intelligence for Transformation - The Impact of Artificial Intelligence on Nigeria’s Tax Ecosystem

Digitising the tax ecosystem has become increasingly critical as nations, especially in Africa, seek digital solutions to streamline tax administration and enhance revenue collection. The integration of artificial intelligence (AI) and other innovative technologies in tax systems promises to address inefficiencies, revenue leakages, compliance issues and a largely untaxed informal sector. The digitisation of the tax system is essential for Nigeria, where the tax-to-GDP ratio remains low, with the IMF reporting a tax-to-GDP ratio of 9.4% in 2023. Innovative technologies like machine learning, AI technologies, natural language processing, robotic process automation, advanced data analytics, e-invoicing, etc., offer promising solutions to these challenges by enhancing efficiency and compliance, expanding the tax base, and enhancing taxpayers’ experience while combating tax evasion.

Nigeria’s tax system is pivotal for economic stability, with expected non-oil tax revenue accounting for 19.2% of the 2024 Federal Government Budget. However, challenges like low compliance and administrative inefficiencies may impact the expected earnings from tax revenue. Thus, emerging technologies such as AI and Big Data offer transformative solutions and enhance efficiency, transparency, and revenue collection, aligning Nigeria with global tax administration standards. AI’s rapid data analysis can improve decision-making and uncover tax evasion patterns, while big data analytics can enhance understanding of taxpayers’ behaviour (Aliyu, 2023). Globally, these technologies have boosted compliance and optimised revenue collection, promising significant benefits for Nigeria in terms of efficiency and effectiveness. Nigeria is gradually integrating innovative technologies into its tax system, as seen with the Finance Act, 2021, which allows the Federal Inland Revenue Service (FIRS) use third-party technology for tax automation.

While it is evident that innovative technologies and AI hold transformative potentials for Nigeria's tax ecosystem and administration, their successful integration demands a strategic approach to overcoming existing challenges. Addressing key issues such as data quality, technological infrastructure, and cybersecurity is crucial. It is also important to invest in human capital and establish comprehensive regulatory frameworks to guide the ethical implementation and use of AI. Effective change management, seamless integration with existing systems, and a commitment to continuous improvement will further enhance the benefits of innovative technologies and AI, paving the way for a more robust and effective tax system.