It is without a doubt that there is a gradual transition of the managerial control of most businesses to the millennials and generation Z (Gen-Z). Most recently set up companies, especially in the tech space, were founded by Gen-Z. Millennials is a term used to refer to the people who were born between the early 1980s and late 1990s while the Gen-Zs refer to those born between the late 1990s and the early 2000s. According to KPMG's 2019 Customer loyalty report, millennials and Gen-Zs are more likely to find corporate transparency and honesty, environmental commitment and innovation as extremely important loyalty factors. Therefore, it is important to understand what compliance means to these generations and redefine the strategies and methodologies available within the tax space to cater for this transition.

Tax compliance can be defined as a taxpayer's willingness to comply with the provisions of the tax laws and relevant regulations by ensuring their tax obligations are fulfilled in time and accurately. Currently, what is obtainable in the Nigerian tax space is the fact that taxpayers only choose to comply in order to avoid sanctions or penalties and not necessarily out of "willingness" to comply. This is not unconnected to the fact that there has not been adequate corporate transparency in the administration of taxes and other levies within the Nigerian system.

According to the Organisation for Economic Co-operation and Development (OECD), all revenue authorities are generally required to achieve the optimum level of compliance as much as possible within the ambit of the law. Invariably, the revenue authorities are expected to drive voluntary compliance, collect the taxes and levies payable in such a manner that instills and sustains confidence and willingness to comply within the system.

With respect to compliance, the requirements may vary depending on the jurisdiction. However, there are four broad compliance categories that exist in most jurisdictions. These are:

  1. The requirement to register or get onboarded in the available system.
  2. The requirement to file relevant tax information as and when due.
  3. The requirement to keep accurate accounting and tax records for relevant periods.
  4. The requirement to pay the assessed liability as and when due.

In terms of compliance, if anyone fails to meet any of these requirements, such can be tagged as non-compliant, albeit, with varied level of non-compliance.

The Nigerian revenue authorities have provided some mechanism to ensure compliance with the requirements listed above. For example, the Federal Inland Revenue Service (FIRS) introduced the Tax ProMax platform for ease of administration of taxes payable to the Federal Government; while the Lagos Internal Revenue Service introduced the e-tax platform for the same purpose, albeit for taxes due to the State. Several other government parastatals such as the Industrial Training Fund (ITF), the Nigeria Social Insurance Trust Fund (NSITF), have also introduced different ways of administration of levies due to them.

Revenue authorities generally have limited allocation of resources; thus, it is imperative that these resources are strategically utilised to ensure maximum compliance. Some key questions that may arise in determining these strategies include:

  • Where are the high-risk areas?
  • What are the causes of non-compliance (if any)?
  • Which taxpayers are affected?
  • What strategies can be implemented to achieve maximum compliance level possible?

Answers to these questions will require a shift in the current mindset of authorities towards taxpayers (especially those that are committing significant resources to ensure high level compliance possible). Further, answers to these questions will require proper understanding of the complications posed by the diversity of taxpayers' behavior to compliance, the complexity of their tax affairs internally, the continuous rapid change to methods involved in consummating transactions, confidence in the system, amongst many others. These would inform how resources are then allocated to various points for maximum result.

Voluntary compliance, like customer loyalty, is not dead, it is not even eroding, however, it needs redefinition for the digital age. Taxpayers attitude to compliance is changing. Thus, the drivers and relevant authorities must align with these changes to take advantage.

Currently, the Nigerian tax space has some incentives that were introduced in a bid to drive investment and voluntary compliance. An example is the amendment that was introduced to the Companies Income Tax Act via the Finance Act 2019 to introduce Section 77(5A) which states:

"Where a company pays its tax 90 days before the due date as provided under Section 55 of this Act, such company shall be entitled to a bonus of-
(a) 2%, if such company is a medium-sized company; and
(b) 1% for any other company;
on the amount of tax paid, which shall be available as a credit against its future taxes."

While this is a good initiative, how many taxpayers have taken advantage of it? Why would anyone want to pay 90 days in advance and get only 1% or 2% in tax rebate the following year when the amount can be invested with a high possibility of getting multiple rates of returns? This example is like the "points and rewards system" or the "buy 100 get 1 free" system in retaining customer loyalty.

Further, the administration of taxes and levies in Nigeria has significantly been through enforcement programmes. "Collect and collect some more, else you don't know what you are doing". This system is rapidly phasing out as the digital age is setting in. The question is: What are the drivers of voluntary compliance (or say "loyalty") now? - Interactions with taxpayers and experiences suggest the following:

  1. Trust: Similar to customer loyalty, trust in the system and the revenue authorities remains the number one concern. Experiences of most taxpayers with revenue authority officials has cast some aspersions on the system, thereby resulting in erosion of trust in the system and ultimately "forced" compliance rather than voluntary. Therefore, it is important that revenue authorities develop strategies to regain the trust of taxpayers and retain this as much as possible. Having incentives can push a bit of compliance but cannot make up for lost trust!
    Transparency has a strong influence on trust. Build transparency as part of the culture in the system. A proper, up-to-date and easily accessible information-warehouse with verified and audited reports will go a long way to enhance trust in the system.
  2. Simplicity / Ease: Millennials and Gen-Zs want simplified processes from registration to final payment. Lengthy processes of registration; providing a long list of documents that could easily be accessed in a centralised government-owned database is no longer viable. Laws and regulations that are not sufficiently clear as to the intentions of the drafters and technical difficulties typically deter willingness to comply.
    Having structured incentives that are relevant to current realities and convergence of tax rates; tax laws and administrative processes need to be simplified and harmonised to ensure ease of compliance.
  3. Digital Technology: It goes without gainsaying that technology continues to shape how we do business. In the last couple of years, we have seen significant growth in the technology space with increasing complexities at every point. Analytical tools also continue to evolve.
    Thus, it is important that revenue authorities do more with the limited resources available by continuously seeking innovative ways to advance their technological tools to accommodate the technicalities or complexities of transactions in recent times without breaching the provision for self-assessment.
  4. Privacy and purpose: Increase in demand for information by the revenue authorities has led to an upshoot in data privacy concerns especially amongst millennials and Gen-Zs. Thus, revenue authorities should understand that there is need for clarity of purpose and assurance of high-level data privacy when requesting for information.
  5. Risk management approach: Undoubtedly, the current approach of revenue authorities towards random or generalised tax audits and investigations without sufficient data signifying non-compliance is not sustainable and is not an efficient use of the limited available resources.
    Therefore, revenue authorities need to have a structured and efficient process for identifying high risk and low risk non-compliance areas. Identified taxpayers that are committing significant resources to voluntary compliance, after reviews, can be tagged as low risk, thus, less scrutiny while identified high risk entities can be focused on, thereby maximising the limited resources rather than the one size fits all approach.


The drivers of voluntary compliance are continuously changing. The traditional ways of introducing incentives and enforcement programmes will produce better results when coupled with value, convenience, experience, purpose and privacy. Advanced education, exposure to more developed climes and importation of foreign investments brings increased demand for improved administration in the tax space. The importance of good governance cannot be overemphasized to promote voluntary compliance.

Compliance is worth investing time and resources to drive maximum willingness of taxpayers. Millennials and Gen-Zs are more likely to be swayed with online positive reviews or commendation of voluntary compliance and recognition of consistency. The target of 18% tax-to-GDP ratio is not impossible with voluntary compliance.

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.