Investigating Lagos' Digital Tax Trap

Since 2022, the Lagos State Internal Revenue Service (LIRS) has fully adopted a digital tax filing system and imposed stricter penalties for defaulters. Studies, however, indicate that many businesses in the state’s informal sector lack the digital skills needed to use e‑tax platforms, according to Omolabake Fasogbon.

Mr. Waheed Adisa is a property link agent, block moulder and building material trader whose combined businesses bring him more than N1 million each month. His earnings automatically exceed the annual turnover threshold of N12 million, which is exempt from paying tax under the new presumptive tax regime.

Because he is taxable, Adisa must pay a one‑per‑cent tax on his turnover and declare his total annual income from all sources, as required by Sections 13 and 14(3) of the Nigeria Tax Administration Act (NTAA) 2025.

Those sections mandate that every taxable individual file annual income returns with the relevant tax authority on their own initiative, declaring income from all sources. Employees must also file separately in addition to their employers’ PAYE returns.

The filing process, which involves submitting tax returns and related documents to tax authorities, is also mandatory for individuals earning below the specified threshold to ensure fairness and transparency, even if their tax liability is zero, says Special Adviser to the Executive Chairman of LIRS, Abideen Akande.

Adisa, who is not digitally literate, fears he cannot navigate the LIRS‑designated portal, the mandatory channel for tax filing by self‑employed individuals, business owners, professionals and informal sector operators.

“I know my business and I am willing to do what the law requires, but all these online processes confuse me. I honestly don’t know where to start,” Adisa lamented.

Digitised filing leaves over 50% of Nigerians behind

More than 50 percent of Nigerians lack basic digital skills and cannot use data services, according to a 2021 World Bank report in “Data for Better Lives.”

Yet LIRS insists that a designated online platform remains the only approved channel for filing tax returns. Many, like Adisa, remain vulnerable under the law and exposed to consequences.

Adisa, who holds only a primary school certificate, developed an early passion for business from his late father. While he uses a smartphone, he falls within the 68 percent of Nigerians whom the World Bank says can only operate smartphones at a basic level.

Beyond making calls, receiving payments and exchanging WhatsApp messages—mostly with the help of trusted allies—his phone usage remains limited.

“Most times, it is even my children that help me use WhatsApp and carry out some bank transactions. I don’t really understand many of the phone features. I struggle with them a lot,” he said.

Adisa’s situation means he risks LIRS sanctions for defaults he did not intend, as available filing channels were not built for his skill level.

Such defaults, which include failure to file returns or submitting incomplete or false information, attract a N100,000 fine in the first month and N50,000 for every subsequent month the violation continues.

He will likely avoid sanctions if LIRS finalises its USSD filing platform, said to be awaiting regulatory approval, which he considers easier to use.

In April 2026, LIRS instituted legal action against an undisclosed number of individuals and 45 firms over tax default, amid concern that digital illiteracy may be a contributing factor among affected individuals.

The Nigeria Labour Force Survey (NLFS) Q2 2024 report published by the National Bureau of Statistics (NBS) established a strong link between low education and informality, stating that workers with no formal education account for 99 percent of informal jobs in Nigeria, while 97.9 percent have only primary education.

Mustapha et al., in a study titled “Integrated E‑tax Filing Management System on Tax Compliance Behaviour in Nigeria,” identified digital literacy, access to technology and trust in e‑filling systems as critical factors influencing tax compliance.

Still, a survey by Research ICT Africa under the “After Access 2022–2023: Nigeria Project” found that 72 percent of adults do not own smartphones. The findings reinforce one message: low‑tech filing channels remain essential for inclusive tax compliance.

State Promises Inclusive Channels, Rollout Unclear

Acknowledging a digital skills gap exists, Special Adviser to the Executive Chairman of LIRS, Abideen Akande, told THISDAY in an interview that the state has begun developing a USSD‑based filing platform awaiting the Nigerian Communications Commission (NCC) approval. Deployed, this will fulfil the accessibility and inclusivity principle of DPI.

Filing enables both taxpayers and the tax authorities to reconcile income and with USSD, Akande said taxpayers will be able to generate a Taxpayer Identification Number (TIN), locate nearby tax offices and access basic guidance on filing.

DPI anchors on the foundational pillars of digital identity systems, digital payments and data exchange layers enabling government operations, including revenue collection. When integrated, these pillars streamline the government’s push to formalise the informal sector, leveraging the foundational National Identification Number (NIN) to assign tax identities and effectively widening the tax net.

In the publication “How Digital Public Infrastructure Could Transform Tax Administration in Africa,” the International Centre for Tax and Development (ICTD) asserts DPI can strengthen digitised tax administration, drive compliance, inclusion and revenue mobilisation, but warns that poor implementation can limit impact.

It is against this background that LIRS said it opted for a USSD platform to align its digital shift with inclusivity.

“The USSD platform is designed to make tax filing more inclusive by providing a simple, mobile‑based option for taxpayers who lack smartphones, reliable internet or digital skills. It targets informal sector operators, artisans, traders and other low‑tech individual taxpayers. The goal is to remove access barriers, improve voluntary compliance and broaden participation in the tax system,” he said.

While this initiative has been welcomed, the rollout date remains uncertain, leaving low‑tech taxpayers in limbo.

Akande disclosed that deployment depends on regulatory approvals and telecom integration. “Because these processes involve external stakeholders, deployment will follow once all technical integrations are fully concluded,” he noted.

While he maintained physical centres exist to provide guidance and support through digital channels, studies, including the World Bank’s, corroborated by findings with players show many are deterred by queues, long distances, poor accessibility and time burdens, all of which stifle compliance.

Judith Monye and Oyintare Abang of KPMG in “Taxing the Informal Sector—Nigeria’s Missing Goldmine,” published in Bloomberg Tax, argued low‑tech channels like USSD