By SAMUEL OLABANJI

THE global trend has been revenue generation. Revenue is the receipt of a government or a business. Government revenue is the money received from taxation, fees, fines, inter-governmental grants or transfers, securities sales, mineral or resource rights, as well as any sales made. Government or the public sector create revenue to pay for government expenditure as salaries of workers and for the execution of capital projects.

If a government revenue is more than its expenditure, it operates a surplus budget. If the expenditure is more than its revenue, it is operating a budget deficit. Companies also need revenue to survive. A company’s revenue is the money earned primarily from the sale of its products or services to customers. The difference between a company’s revenues and expenses determine whether it is making profit or loss.

For many governments, the dominant share of revenue is tax. Taxation is the system where taxes are levied on some types of income, earnings or purchases. In Nigeria, the tax system comprises the tax laws, tax policy, and tax administration. The Nigerian tax system contributes to the well-being of Nigerians through improved policy and appropriate utilisation of tax revenue.

The tax system is also to encourage stable revenue generation to accomplish laudable projects and investment, economic stabilisation, distributive equity, etc, for economic growth and development(Presidential Committee on National Tax Policy, 2008). Revenues are collected through individual income taxes, corporate taxes, customs and excise duties, sales taxes, withholding taxes, value added tax, etc. Taxation in Nigeria is enforced by the three tiers of government (Federal, State, and Local Governments), spelt out in the Taxes and Levies law, 1998. 

The Federal Inland Revenue Service, FIRS, is the apex of the tax system in Nigeria. Its chairman is appointed by the President with the approval of the Nigerian Senate. The states and the Federal Capital Territory have their various Internal Revenue Services, IRS, or agencies to administer taxation. The 774 Local Governments have their various revenue departments. The FIRS encourages voluntary compliance with the tax laws and regulations by providing information and assistance to tax payers and to take necessary and appropriate action to enforce the laws. The Federal Government collects the profit taxes, royalties, crude oil sales; company income tax, value added tax, customs and excise duties on behalf of the federating units. There is also a Joint Tax Board, JTB, for the three tiers of government supervised by the FIRS Chairman. 

Agencies in the tax system are to help taxpayers pay the correct amount of tax. Databases on tax payers are established by the Federal, State and Local Governments to identify all possible sources of income of tax payers for tax purpose. Cases of tax loss abound in the system as it is in many parts of the world. In a study on Taxation and Revenue Generation in Nigeria (Adegbite & Fasina, 2019), consistent low tax revenue inflow is characterized by government negligence, tax evasion, avoidance, record falsifications, gross inefficiency and leakages have hampered the amount of revenue realised from tax sources over the years. The incidence of tax evasion and avoidance by tax payers is high, leading to low level of government revenue which further reduces the level of government expenditure, culminating into a reduction in the income savings and expenditure of households and firms, leading to low level of economic activities and economic growth. 

Governments through enabling legislations make taxpayers file accurate returns. Taxation is a major contributor to revenue generation and indeed the Gross Domestic Product, GDP. The use of technologies has the potential to revolutionize the way we file our taxes, making the process faster, easier and more accurate. Tax administrations are increasingly using technology to transform their operations. The use of advanced techniques in artificial intelligence, machine learning and machine-to-machine links are opening up new service options for tax administrations that allow more ‘compliance-by-design’ style approaches. The trend is increasing for tax administrators to unlock the power of digital transformation. The Finance Act 2020 and Sections 25 of the FIRS Establishment Act empowers the FIRS to deploy technology to automate the tax administration process, including assessment, collection and information gathering. 

The amendments to the FIRS Establishment Act in the Finance Act 2021, empowered it (FIRS) to use third-party technology to automate tax administration. The e-Tax portal, TaxPro Max, is the FIRS latest effort at digitalising tax administration in Nigeria. The electronic platform was deployed in 2021for taxpayers to easily pay taxes, and to file naira-denominated tax returns online. It enables taxpayers obtain tax clearance certificates and instant credit of withholding tax and other credits.

The intention is to ease compliance, make the system convenient, flexible for stakeholders like taxpayers, tax practitioners, experts and policy makers. With these, the burden on taxpayers and agencies will reduce, thereby improving services. In a dynamic world our government is trying to adapt to change and develop the Nigerian tax system. Transparency and accountability by tax agencies are needed to increase revenue generation for government. 

The World Bank on Taxes and Government Revenue indicates that collecting taxes is the main way for countries to generate public revenues to finance investments in human capital, infrastructure, and the provision of services for their people and businesses. The need to increase revenue collection is particularly acute for fragile countries that currently collect less than 15 percent of GDP in taxes. The International Monetary Fund, IMF, reported that Nigeria recorded a tax revenue to gross domestic product, GDP, ratio of 9.4 percent in 2023. The report said Nigeria was one of the lowest revenue to GDP in the world in 2023.

The National Bureau of Statistics, NBS, reported a decline from 10.86 percent in 2021. For Nigeria, effective automation programmes can greatly enhance the ability of the public sector to improve revenue collection. With advanced data processing capacity enabled by Artificial Intelligence, AI, tax agencies can conduct more efficient tax systems. The challenge is to design and implement Intelligent Automation, IA, and Artificial Intelligence programmes with critical elements for successful mission delivery of services. 

Advanced algorithms can analyse vast datasets to detect anomalies, patterns of non-compliance, and potential tax fraud. 

Intelligent Automation, including Artificial Intelligence, it is believed, would revolutionise how governments derive value and insights from data to achieve key goals and objectives. Artificial Intelligence is technology that helps computers gather information and figure out solutions in ways that imitate human thinking. Artificial Intelligence generally covers a spectrum of algorithms, machine learning models, generative AI, neural networks, robotics, design principles, and industry trends. The development of neurocomputer has made the computer to imitate the human brain’s ability to identify patterns, learn by trial and error, and find relationships in information. It is used in research to perform functions as machine translation, process control, handwriting recognition, and weather forecasting. 

AI analyses content (documents, images, sound, movies, events, etc.) to make predictions and prescribe actions. 

Writing for Inter-American Center of Tax Administrations (CIAT) 2017, Cristina García-Herrera Blanco asked these questions: Is it possible that, in the future, all taxpayers´ doubts regarding taxes are resolved by virtual assistants? Will we see a world in which taxpayers do not have to file tax returns, which will be made by intelligent machines? Will a verification procedure be sorted out without the intervention of officials? Richard Asquith of VAT Calc however provides answers that tax authorities have been using predictive modelling in identifying flags for tax fraud or errors, with cloud-based AI able to review colossal volumes of data.

Long standing Computer-assisted audit tools and techniques (‘CAATT), heavily enhanced by AI are used to detect international avoidance Tax administration is another arm of government which owes the public a duty of care and the fairest of outcomes. Aside from the efficiency gains of tax collected against the cost of the agencies, this can also mean faster and improved communications and outcomes for taxpayers. The ability of AI and related technologies to extract and analysis trends from huge amounts of data is cutting down on the costly and unreliable use of manual interventions. And in addition to better accuracy, it can speed-up operations which means a better chance of identifying potential fraud or managing enquiries from the public or government. The possibilities are huge, but also the risks from technological, economic, sociological, legal and ethical perspectives.

Several participating countries are using AI to detect potential tax fraud or errors, assist the efficiency of their own compliance and administrative activities. Some tax authorities are using AI-driven virtual assistants. The list of authorities includes the United States, UK, Canada, Malta, the Netherlands, France, Brazil, Italy, Poland, India, Australia, Ireland, Finland, Singapore. Others include Spain, Sweden, Romania, Vietnam, Peru, Latvia, Estonia, the Republic of China, Guatemala, Chile, Mexico, Costa Rica and Colombia. The Inland Revenue Service of the US is adopting Artificial Intelligence technologies and algorithms to identify taxpayers who make US$1 million and up, to replace existing paper-based reporting and returns.

Malta, UK, Canada, the Netherlands and Ireland use an AI system that daily compares wealth based on public sources with that declared in their VAT and tax returns. France uses AI satellite image scanning to identify signs of conspicuous consumption including multiple cars or swimming pools appearing at residents of person under tax investigation. It is useful for local direct taxes (real estate tax). Italy appears the most fervent users of AI for detecting tax evasion. In 2023, it identified over one million high-risk cases with AI-driven data analysis. Its VeRa algorithm compares tax filings, earnings, property records, bank accounts and electronic payments looking for discrepancies. High-risk taxpayers then receive a letter asking them to explain the differences.

Countries are using AI to identify tax evasion patterns, predict potential non-compliance, or to allocate auditing resources effectively. With Generative AI like ChatGPT (a customer service robot or bot), owned by OpenAI, new content and existing content is better understood in software code, images, grammar, and other data types. It is reported in a study published in 2023 by the Organization for Economic Cooperation and Development (OECD) that 65 percent of tax administrations around the world already use AI, 40 percent of countries use virtual assistants, and more than half of all global tax agencies are using AI for risk assessment. 

But it should be underscored that generative AI cannot guarantee perfect accuracy of the content it creates. Inaccurate or unfair outputs may cause faulty financial reporting, that may open firms to potential liability issues. Algorithmic bias may result in unfair outcomes, thus affecting individuals or businesses with unforeseen ethical and legal implications. Tax professionals should build up their capacity to use AI tools to keep data safe, maintain privacy and avoid misuse of information. 

However, technology and tax experts believe that the future of tax preparation is bright with the integration of AI and automation. These technologies have the potential to revolutionize the Nigerian the tax agencies, empower tax preparers to deliver more efficient, accurate, and personalized services to their clients. The deployment of AI also alleviates the complexity surrounding cryptocurrency tax compliance.

They allow for the importation of transaction data from various exchanges, automatically compute gains or losses, and generate tax reports, thus ensuring accuracy in tax filings. With advanced data processing enabled by AI, Nigerian tax agencies would conduct more efficient and targeted audits. Advanced algorithms analyse vast datasets to detect anomalies, patterns of non-compliance, and potential tax fraud. By adapting to change, embracing effective automation, and focusing on delivering value, the tax system can deliver more revenue for growth and development.

*Olabanji, a chartered accountant, global financial and tax expert, wrote from the USA