Presentation by Efobi Uchenna, Beecroft Ibukum and Belmondo Tanankem at the second annual Nigerian Tax Research Network meeting which took place in Abuja on 24th and 25th November 2018.

1. Efobi Uchenna
Covenant University, Nigeria
uche.efobi@covenantuniversity.edu.ng
Beecroft Ibukun
Covenant University, Nigeria
ibukun.beecroft@covenantuniversity.edu.ng
We acknowledge NTRN/ICTD for the generous funding and
technical assistance that was received for this project.
Belmondo Tanankem
Ministry of Economy, Planning, and
Regional Development, Cameroon
tanankemvoufo@yahoo.fr

2. 1. Introduction
2. Motivation
3. Research Questions
4. Background - Taxation and the ITAS System
5. Research Method
6. Results and Discussion
7. Conclusion and Policy Implication

3.  Building the capacity of tax administration is an important instrument for
generating internal revenue to spur development in Africa.
 Important challenges in tax administration in developing countries are
geared towards:
◦ tax collection, and
◦ the inefficiency of the tax system to timely and adequately generate sufficient revenue for
the government
 Technology adoption is crucial to improving the overall efficiency of service
delivery (including tax administration) in the public sector. It aids in:
◦ reducing public officials’ discretionary input in service delivery,
◦ combating corrupt practices, and
◦ reducing the cost of such revenue generation process.
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4.  The electronic tax collection and filling system is a significant and
attractive initiative to the revenue generating authorities of many
developing countries
 About 32 percent of developing countries have introduced such electronic
tax filing systems.
 Issues still unknown include:
◦ the extent to which taxpayers use these systems, and
◦ the factors that motivate them to adopt such systems
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5.  Understanding the extent to which tax remittance technology is adopted by small
businesses and what motivates the adoption is important for the following reasons:
a) Low rate of adoption of electronic systems in initiating and implementing financially
related transactions in Africa
b) Similar low adoption rate for the tax system in Africa and most of the tax authorities report
being dissatisfied with their existing electronic systems.
c) There has been a history of low rate of private sector adoption of technologies that was
initiated by the government:
 A vivid example is the mobile money service that was introduced by the Central Bank in
2011, and for which there has been a dismal adoption rate (of about 13 percent) since its
introduction.
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6. d) Urgent need to improve non-oil revenue in Nigeria, especially from SMEs.
• SMEs makeup about 97 percent of the Nigerian economy and their aggregated tax
remittances surpass those of the large enterprises.
e) Finally, there are other benefits from the electronic tax system:
 decreasing taxpayers compliance costs,
 reducing the tendency for extortion and other corrupt practices by tax officials, and
 reducing opportunities for collusion and tax evasion.
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7.  Research questions that this study intends to answer:
a) What is the extent of the adoption of the ITAS?
◦ Actual adoption
◦ Perception
b) What are the factors that motivate ITAS adoption
among small businesses?
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8.  Total number of taxes and contributions paid by a typical manufacturing firm in Nigeria is
59
◦ Higher than the SSA average of 37.2, and World average of 10.9
◦ Including consumption taxes - like the value added tax and sales tax
 Ease of paying taxes: Hours to remit taxes by a typical firm is about 366 hours per annum
◦ SSA average is about 280.8 hours, and the World average is about 160.7 hours (World Bank, 2018)
◦ If working 8 hours per day, it would take 45.75 days to remit taxes
 Thus, Nigeria is ranked about 50 percentage points away from the global best performers
in the ease of paying taxes
◦ i.e. the number of tax payments, time allocated to tax computations, total tax and contribution rate, and post-
filing index.
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9.  The ITAS framework was initiated to boost national
revenue through:
◦ easing the tax administration processes,
◦ enhancing transparency in tax administration, and
◦ promoting voluntary tax compliance
 To understand likely reception to technology, we
present statistics of mobile technology service usage in
Nigeria
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10. Used the internet
to pay bills in the
past year
(% age 15+)
Mobile money
account
(% age 15+)
Made or received
digital payments
in the past year
(% age 15+)
Used a mobile
phone or the
internet to access
a financial
institution
account in the
past year
(% age 15+)
Used a mobile
phone or the
internet to access
an account
(% age 15+)
World 22% 4% 52% 23% 25%
Sub-Saharan
Africa 6% 21% 34% 8% 21%
Nigeria 4% 6% 30% 7% 8%
South
Africa* 10% 19% 60% 17% 21%
10
Mobile Financial Service Usage in Nigeria
Note: *South Africa was included as a good comparison for Nigeria considering the
economic size of both countries, and the political influence they have within the continent.

11.  The data for this research was from a survey of small businesses from seven (7)
Southwestern states in Nigeria for the period July to August 2018.
◦ Abia, Anambra, Cross River, Delta, Lagos, Ondo, Oyo,
 We focus on small businesses because:
◦ This group of taxpayers pay company income tax (CIT) and personal income tax (PIT), for
which the ITAS system will be most efficient for tax filling.
◦ Small businesses, on the other hand, personally file both the CIT and PIT, and hence will be
most affected by the ITAS system considering that the majority of their tax filing is based on the
effort of the entrepreneur or the individuals within the enterprise.
 We focus on South-Western Nigeria because:
◦ About 60% of SMEs in Nigeria are located within the southern region, with Lagos having the
highest enclave (SMEDAN, 2013).
◦ Most economic activities in Nigeria are prevalent in this region, and states in this region
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12.  The calculated sample size for this study is approximately 430 small businesses
from a population of 42,655 in Nigeria
 Actual sample was 485 small businesses (additional sample for contingency).
◦ The population of the SMEs in Lagos State was derived from the 2013 SMEDAN statistics.
 The sample is distributed across the states with the highest number of FIRS
offices and across the tax coordination areas
◦ Based on principles of Probability Proportional to Size (PPS) to allocate number of small
businesses to states according to the concentration of the enterprises and the location of tax
offices.
 Justification for sample selection is to test other important external influences
from tax administrators that might influence the behaviour of taxpayers (i.e.
small businesses) in complying with the ITAS framework.
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13. Tax Coordination Area States Total SMEs Proportion Proposed Sample FIRS Offices
Akwa-Ibom, Bayelsa and Cross River
Coordination Cross-River 1294 0.025 17 3
Akwa-Ibom 1093 2
Bayelsa 426 2
Anambra and Imo Coordination
Anambra 1737 0.040 27 4
Imo 1394 3
Delta, Edo, Rivers Coordination
Delta 1444 0.034 22 4
Edo 1997 4
Rivers 3022 3
Abia, Ebonyi, and Enugu Coordination
Abia 1809 0.042 28 4
Ebonyi 1210 2
Enugu 911 2
Ekiti, Kwara and Ondo Coordination
Ekiti 1029 2
Ondo 1999 0.046 31 2
Lagos Coordination
Lagos 11663 0.271 179 16
Ogun, Osun and Oyo Coordination
Ogun 1794 3
Osun 2272 1
Oyo 7987 0.185 122 3
Total 17 27,732 1.000 426

14. 14

15. Variables Definition Mean Std. Dev.
Ownership structure
Education of the
owner
Measured as ‘1’ if owner’s highest education qualification is
secondary school, 2 if University, and 3 if completed a post-
graduate degree 2.604 0.653
Board size
Measured as the number of owners that the firm has, including
male and female. This shows the diversity of views that may be
present among the top managers of the small businesses 1.373 0.876
Owner’s industry
experience
The number of years that the owner (i.e. entrepreneur) of the firm
has been in this particular business or industry. We expect that
higher experience will imply that the owner will be less responsive
to change to ease its administration. 8.521 5.938
Owner’s age
The age of the owner. Older individuals are expected to be less
receptive to change; implying that they will be less likely interested
in adopting ITAS. 43.417 9.009
Manager’s finance
degree
A count variable of the number of board members of the small
businesses with a finance degree. Apriori expectation is positive
considering their conversance with systems that can improve tax
efficiency. 1.328 1.918
Owner’s involvement
A dummy variable ‘1’ if the owner of the firm is also a member of
the board of the firm. Apriori expectation is also positive. 0.715 0.452 15

16. Firm Structure
Audit efficiency
Measures the efficiency of the audit process, where ‘1’ equals that the firm is using an
external auditor, and ‘0’ otherwise. 0.220 0.415
Computerized
accounting system
A dummy variable ‘1’ if the firm’s accounting system is computerized and ‘0’
otherwise. This variable is expected to have a positive influence on the likelihood of
adopting ITAS. 0.333 0.476
External tax
consultant
A dummy variable ‘1’ if the firm engages the services of an external tax consultant for
tax related matters. This is expected to have a positive influence on the probability of
adopting ITAS. 0.270 0.444
Small business
participated in ITAS
training
A dummy variable ‘1’ if the firm participated in a training organized by FIRS on how to
use ITAS, and ‘0’ otherwise. This variable is expected to have a positive relationship
with the likelihood of adopting ITAS. 0.154 0.361
Internet use A dummy variable ‘1’ if the firm uses internet in its operations, and ‘0’ otherwise. 0.706 0.456
Legal consequence
of tax non-
compliance
A dummy variable ‘1’ if the firm reports that they are aware of the consequences of tax
non-compliance, and ‘0’ otherwise. 0.643 0.480
Size of business
This is measured as the total number of employees that the firm has. It is expected that
larger firms will most likely adopt the ITAS platform for tax remuneration than smaller
firms. 20.867 32.024
Age of company Measured as the total age of the firm since its incorporation. 12.960 12.732
Firm performance
This is measured as the logarithm value of profit of the firm in the last 12 months
before the survey. 15.205 1.645
Firm innovativeness
This variable range from 0 to 6. Values were computed as a sum of the responses to the
participation of firms in the following activities – introduced a new or significantly
improved product or service; introduced a new of significantly improved process;
introduced new technology to firms’ operation; trained worker on new methods and
processes; organized seminar or trained workers on improving organization processes;
introduced new technology to firms’ marketing or customer relations. 3.099 2.067
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17. External environment
Tax burden score
Burden score of the tax administration is defined as the cumulative weighted score of the
responses of firms across eight different indicators including tax regulations, tax payment
system, tax officials, tax information, filling tax complaints, courts to settle tax dispute,
accessibility of tax offices, and online tax payment system. The different indicators are given
similar weight (1/8) considering that each of the indicators are an important perception that can
define the response of taxpayers to initiatives by tax administrators. 0.433 0.257
Tax environment
Firms perception about general taxation, which is computed as an index that range from 0 to 1
with higher values implying that firms have a negative perception about taxation. The index
comprise questions related to firms do not pay taxes regularly, firms misreport their income and
expense, firms over report their allowances, firms pay bribes to tax officers, firms declare losses
to avoid paying taxes, and tax officials demand for bribe. The responses to these questions are
then weighted (1/6), and the sum of all the responses were the values for this variable. Firms
with negative perception are expected to less likely adopt ITAS. 0.619 0.285
FIRS personally
encourages
A dummy variable ‘1’ if the firm ever received any letter or information from FIRS encouraging
them to use ITAS of pay their tax using ITAS. 0.455 0.499
FIRS advert
A dummy variable ‘1’ if the only information about ITAS was through a public advertisement by
the FIRS office. 0.308 0.462
Trust tax administration
A dummy variable ‘1’ if the firm reports that they trust the tax administration system in their
location/area. 2.275 0.996
Outcome variables
Used ITAS for tax
computation
A dummy variable ‘1’ if the firm used the ITAS system to compute and file its tax in the last
filling season, and ‘0’ otherwise. 0.140 0.349
Perception about ITAS
Ranges from 0 to 6 with higher values implying that firm perceive ITAS better than the manual
tax filling system. The variable is computed from the addition of the following responses to the
questions on – preferring the ITAS compared to the manual tax system; making less mistakes
when filing taxes while using ITAS; ITAS platform being less complex and difficult to follow;
trusting the tax computation from ITAS; better tax values when computing with ITAS compared
to manual process; needing more time to understand the ITAS tax computation. The initial
response to these questions are ‘1’ if yes, and ‘0’ if no. 0.727 1.445
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18.  Formally we estimate the following equation;
Pr(Yi Xi,Wi,Zi,Ci.c=φ(σXi + δWi + λZi+∅Ci)
 Adoption: Probit regression is applied
◦ to identify factors that determine or are associated with the
probability that a small business will adopt the ITAS.
 Perception: Tobit model is applied
◦ applied to take into consideration the censoring component of this
variable
◦ ranges from 0 to 6; 0 - less positive perception; 6 - more positive
perception
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19.  Knowledge and Adoption of Integrated Tax Administration
System (ITAS) across sampled states
 Knowledge is not necessarily synonymous with adoption
 Lagos has the highest rate of adoption relative to knowledge
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20.  Knowledge about ITAS and Adoption Rate across
Deciles of Firm Size
 The knowledge and adoption rate of ITAS tends to
increase with the size of the firm
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21.  Knowledge about ITAS and Adoption Rate across
Educational Qualification of Firm’s Management
 Level of education is positively related to knowledge
and adoption of ITAS
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22.  Knowledge about ITAS and Adoption Rate across Deciles of
Firm’s Burden Score of Tax Administration
 Firms that perceive tax administration as most burdensome
tend to adopt ITAS more
 Same for firms that perceive tax administration as least
burdensome
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23. ITAS and Organizational Management Characteristics
Most important factors affecting adoption and perception are education and manager’s finance degree;
Note: This summarized results are from different regression models. The results are the marginal effects of the estimation. Values in
parenthesis are the p-values, and *, **, *** represent 10, 5, and 1 percent levels of significance.
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Variables
Signs and Significant Values
Adoption of ITAS Perception of ITAS
Education of the Owner 0.075***
(0.006)
0.367***
(0.001)
Board size -0.006
(0.413)
0.112*
(0.093)
Owner’s experience in industry
0.006***
(0.003)
0.021*
(0.075)
Owner’s age
0.003***
(0.000)
0.002
(0.980)
Manager’s finance degree
0.045*
(0.100)
0.197***
(0.010)
Manager’s involvement in business
-0.033
(0.216)
-0.063
(0.684)

24. 24
ITAS and Firm’s Internal Organizational Structure
Note: Same as Preceding Table
Variables
Signs and Significant Values
Adoption of ITAS Perception of ITAS
Auditor efficiency
0.330***
(0.000)
0.963***
(0.000)
Computerized accounting system
0.088***
(0.000)
0.346***
(0.046)
External tax consultant
0.240***
(0.000)
0.764**
(0.003)
FIRS official training firms
0.442***
(0.000)
0.818***
(0.012)
Firm uses internet
0.105***
(0.000)
0.219
(0.220)
Aware of the legal consequence
0.126***
(0.000)
0.326*
(0.100)
Size of business
0.009
(0.317)
0.005
(0.192)
Age of company
0.005**
(0.024)
0.018***
(0.000)
Firm performance
0.022
(0.120)
0.025
(0.826)
Firm’s innovativeness
0.017
(0.125)
0.106**
(0.035)

25.  External Environment of Firms and ITAS Adoption
 Note: Same as Preceding Table
25
Variables
Signs and Significant Values
Adoption of ITAS Perception of
ITAS
Tax burden score
-0.044
(0.572)
0.099
(0.195)
Perception about tax
0.028
(0.591)
0.026
(0.919)
FIRS personally encourages
0.144**
(0.013)
0.258**
(0.050)
FIRS advert
0.082***
(0.002)
-0.010
(0.952)
Trust tax administration
0.040***
(0.002)
0.105
(0.190)

26.  We further re-estimate the regression results in previous
Tables by controlling for the FIRS office fixed effect.
◦ Based on contemporary experiences, some FIRS offices
perform better than others in being aggressive with tax
information and tax compliance, and with the extent to which
they inform firms about the new ITAS system
 The results remain consistent as in previous Tables.
26

27. Main Findings: The following matter in ITAS Adoption &
Perception
1) The education of the owner of these small businesses
2) Manager’s finance related degree
3) The use of external auditors and tax consultants
4) Training of small businesses on ITAS
5) Awareness of legal consequences of non-compliance
6) Firm’s level of innovation
7) Internet usage by firms
8) Public advert by FIRS offices
9) The trust for tax administration
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28.  Considering these issues in encouraging ITAS adoption
can also benefit tax administrators
◦ significant system-wide efficiency gains from ITAS compliance
◦ reduction of tax officers’ man hour for tax administration
◦ time saved can be directed at other activities likely to increase the marginal
productivity of the tax process.
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