Actualisations: Blockchain Technology Utilisation And Nigerian Tax Optimisation – Technology


The Federal Government (FG) in a bid to transform the
country’s revenue uptake has instituted various tax reforms
including the amendment of some extant tax laws through the
Finance Act (FA), 2020. It has signalled
its commitment to henceforth try to make Nigeria’s tax laws
keep pace with business by the recent introduction of the
Finance Bill, 2021 which promises more
amendments. The Federal Inland Revenue
Service (FIRS) N8.5 trillion revenue target in 20201 is likely to be
missed; as at October 2020, they had only collected N4.17
trillion.2 Even without the current Covid-19
pandemic and the resultant disruption in economic activities, it
was doubtful that the revenue projection would have been achieved.
Historic data from the FIRS bears this out:


Revenue Target3

Revenue Generated


N 4.57 Trillion

N 3.74 Trillion


N 4,20 Trillion

N 3.30 Trillion


N 4.88 Trillion

N 4.02 Trillion


N 6.74 Trillion

N 5.32 Trillion


N 8.8 Trillion4  

N 5 Trillion5

However, whilst the FIRS more often than not did not meet its
targets, it recorded improvements in collection profiles.

The foregoing has left the FIRS with no choice but to be at the
forefront of strategic internal revenue mobilisation through
erstwhile unutilised tax avenues such as more aggressive
enforcement of stamp duties provisions and the collection of taxes
on non-resident digital companies.

Given the optimality potential in digital technology, it is
apposite to examine how the use of blockchain can improve revenue
collection in Nigeria. This article will therefore show how
compliance obligations and ultimately improvements in ease of
payment of taxes (and ultimately an improvement in the global ease
of doing business and ease of payment of tax rankings) could be
achieved through the use of blockchain technology.

Blockchain and Efficient Tax Administration –
Enforcing Compliance for Optimum Revenue Generation and Ease of
Paying Taxes

Blockchain technology is a secured system of decentralised
peer-to-peer encrypted digital ledger which enables the compilation
of transactions within its chain and could be used to streamline
and automate indirect taxes. The introduction of e-filing system by
the FIRS has reportedly witnessed a spike in compliance by
companies whilst promoting the ease of paying taxes. However, it is
important to ensure that the compliance burden placed on taxpayers
is not onerous given their multiple tax obligations such as Stamp
Duties, VAT, Hotel Occupancy and Restaurant Consumption Tax,
Companies Income Tax, Personal Income Tax, withholding tax (WHT),
Police Fund, Industrial Training Fund (ITF), Tertiary Education
Trust (TET) Fund, sectoral levies like NITDA, Local Content
Development, etc.

According to World Bank Paying Taxes 2020
, Nigeria was ranked 159/190 with 48 different
types of payment and 343 compliance hours per year compared with
Bahrain which was ranked 1/190 with only 3 types of payment and 23
compliance hours.6 It is therefore important to ask
the question; will the introduction of new taxes in Nigeria
lead to increased revenue yield or efficiency in tax administration
by reducing compliance time and widening existing tax net?

Understandably, the FIRS has adopted the later by intent to
widen the tax net through heightened stamp duties compliance
enforcement amongst others. However, the ultimate question in
increasing the country’s revenue projection is: how can
efficiency in tax administration be guaranteed through ease of
compliance obligation?

The inclusion of non-resident digital companies in tax
compliance obligations (new section 13(2)(c) CITA vide
section 4(a) (ii) FA 2020
) has further increased the
administrative responsibilities of the FIRS to ensure that the
right amount of taxes are collected from these entities in line
with extant tax laws. There is therefore the need to monitor
transactions especially those conducted over digital channels such
as in the digitalised economy given its sheer size and potential
revenue yield for the FG.

With an evolving digital trend, blockchain driven by smart
contracts given its ability to automate calculations and increase
transparency and accuracy of transaction data has the potential to
drastically change Nigeria’s tax landscape as taxpayers’
direct transaction data will be monitored and appropriate tax
liability paid without human interference. This will also portend
ease of tax compliance from taxpayers’ perspective as all
necessary deductions would be automated into the blockchain

By introducing blockchain technology into Nigerian tax
administration, the verification of transaction data, validation of
data, submission of returns and processing of tax filings and
payment will be streamlined. More so, for taxes such as Stamp
Duties, VAT/Sales Tax, payment will be deducted directly from the
parties liable to make payment through the secured blockchain
payment platform. This will eventually lead to a reduction in the
volume of paper-based submissions in cases of large volume

For instance, where Company A intends to transact with Company
B, the transaction is routed through the FIRS’s blockchain
platform using smart contracts which guarantees security of
parties’ data. Upon finalisation of the contract, the invoice
is automatically divided into VAT and non-VAT amount (where the
transaction involve VATable goods or services). Once payment is
made to the vendor, the appropriate tax liability (i.e. VAT) is
directly paid to the FIRS whilst the non-VAT amount is paid to the
vendor. By so doing, the FIRS captures all applicable transaction
data at the point the transaction is concluded thereby reducing or
eliminating the need for a paper trail tax audit and subsequent tax
disputes after the fact of the transaction.

Legal and other Considerations for Implementation

It is noteworthy that the FIRS is not restricted from
introducing any technology for the purpose of tax administration.
In fact, it is within its competence to outsource its
responsibilities such as information gathering, analysis, etc.
other than assessment, collection or routine responsibilities of
tax officials to appointed consultants or agents:
Section 12(4) FIRS (Establishment) Act.
The FIRS has initiated numerous initiatives to drive tax compliance
across board with the introduction of e-filing and digital stamp
for Stamp Duties payment, simplification of tax compliance forms,
issuance of Tax Identification Number (TIN) to businesses at the
point of incorporation/registration and regular community
engagement with business leaders amongst others.

Sometime ago, the Lagos State Internal Revenue Service (LIRS)
had introduced Electronic Fiscal Devices (EFD) for the purpose of
monitoring consumption tax compliance at the point of sale to
customers in hotels and restaurants in Lagos. The move was
challenged by restaurants and hotel operators in Lagos State over
privacy and security of data concerns, amongst others. The Federal
High Court (FHC) in Registered Trustees of Hotel Owners
and Managers Association of Lagos v. A.G Lagos and FIRS [2019] 47
was approached on the legality of Lagos State
enactment of the Hotel Occupancy and Restaurant
Consumption Law (HORCL)
the enabling law for the
Lagos State Hotel Occupancy and Restaurant Consumption
(Fiscalisation) Regulations 2017
which introduced the
use of EFDs in the collection of sales tax by hotels and
restaurants in the state. The FHC upheld the Lagos State
HORCL (taking into cognisance the
provisions of section 4(7) Constitution of the Federal
Republic of Nigeria 1999 (as amended)
Taxes and Levies (Approved List of Collection)
and Tax and Levies (Approved List of
Collection) Act (Amendment) Order 2015
) and
invariably, the regulations made pursuant to it.

However, another recent decision of the FHC in
Registered Trustees of Hotel Owners and Managers
Association of Lagos v. A.G Federation & Minister of Finance
(2020) 52 TLRN 1
has thrown a spin in the validity of
the HORCL. The FHC invalidated the
Tax and Levies (Approved List of Collection) Act
(Amendment) Order 2015
made by the Minister of
Finance on the grounds that same is inconsistent with
section 4 Constitution of the Federal Republic of
Nigeria 1999 (as amended).

To assuage users/taxpayers of the necessity to implement these
policies to ameliorate tax compliance burden on taxpayers, reliance
could be placed on the Nigerian Data Protection
Regulations (NDPR), 2019
and the
Guideline for Management of Personal Data by Public Institutions in
Nigeria (GMPDPI), 2020
issued by the National
Information Technology Development Agency (NITDA). Accordingly,
Guideline 2.1 (a) GMPDPI imposes an
obligation on all public institutions (including the FIRS) to
protect the personal data in any incidence of processing of such
data. More so, these public institutions must ensure that the data
being processed are secured from unauthorised access and fulfilment
of security certifications;Guideline 2.6

Taking the ‘Efficiency Lead’: Cross Jurisdictional

An efficient tax administration bolsters investment
attractiveness and ease of payment of taxes whilst also reducing
the tax burden on taxpayers. Many countries are taking the lead to
digitalise their tax payment and improve their revenue yield
through similar technology. For instance, countries such as
Portugal, Poland, Hungary, Norway, Lithuania, Luxembourg and
Austria have introduced the Standard Audit File for Tax (SAF-T)
which is aimed at facilitating the efficient and steady interchange
of tax information between businesses and international tax
authorities. The SAF-T allows Revenue to have real-time
transactions data in line with their reporting requirements and
timeframes whilst also ensuring collection of indirect and direct

The use of technology in tax administration is becoming
increasingly prevalent given the need to plug the gap in global
budget deficits and increasing level of digital transactions with
little or no Revenue’s physical interference in the tax
collection process.


Increasing Nigeria’s public revenue profile through incisive
implementation of existing tax laws is germane to funding the
country’s deficit budget. More so, with increasing ease of
payment of taxes, taxpayers will be relieved of the excessive
burden associated with fulfilling their civic obligation and are
more likely to contribute their fair share of taxes to the
nation’s coffers. Implementation of new technology such as
blockchain in domestic revenue mobilisation will afford the FIRS
(and State IRS) the opportunity to meet their revenue targets. The
successes recorded with FIRS (and LIRS for example)’s e-filing
initiative whilst also reducing the tax burden of taxpayers; a
win-win situation for both tax stakeholder parties offers
encouraging signals. However, there must be investment in FIRS’
and SIRS’ digital infrastructure and increased level of
inter-agency collaboration to facilitate more significant
improvements in ease of paying taxes.

This article was originally published by Afronomicslaw ( 14.12.2020 as
Tax Tech Reg: Blockchain Technology Utilisation and
Nigerian Tax Revenue Collection Optimisation

December 2020


1. NAN,
‘FIRS Targets N8.5trn Revenue in 2020’,
Guardian 7 February, 2020
(accessed 6.12.2020)

‘FIRS Generates N4.17trn in
, Vanguard 4 December,
(accessed 5.12.2020)

Tax Statistics/Reports, ‘Annual Summary of
Collection from Year 2000’,
(accessed 5.12.2020)

Cynthia Egboboh, ‘FIRS 2019 Revenue, 3.7 trn Below
, BusinessDay 27 December 2019
(accessed 5.12.2020)


6. World
Bank and PwC, ‘Paying Taxes 2020
, The World Bank 26 November 2019
(accessed 5.12.2020)

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.