REGULATORY FRAMEWORK FOR TAXING THE DIGITAL ECONOMY IN NIGERIA: CHALLENGES, COMPLIANCE STRATEGIES, AND REFORM PROSPECTS

Abstract

The rapid expansion of the digital economy has challenged traditional tax systems worldwide, with Nigeria facing significant difficulties in taxing cross-border digital transactions under laws originally designed for physical commerce. This paper critically examines the legal and regulatory for taxing the digital economy in Nigeria, focusing on existing statutory provisions, enforcement mechanisms, and their alignment with global best practices. Using a doctrinal research method, the study analyzes key legislations such as the Finance Acts (2019-2023), Companies Income Tax Act, and Federal Inland Revenue Service (FIRS) Guidelines, complemented by a comparative review of OECD proposals and international models. Findings reveal that although Nigeria introduced Significant Economic Presence (SEP) rules to capture digital revenues, enforcement remains weak due to jurisdictional challenges, inadequate technological capacity, and low compliance by non-resident companies. The study further identifies policy inconsistencies and a lack of harmonization with global standards as major obstacles to effective digital taxation. It recommends adopting clearer nexus rules aligned with international frameworks, strengthening digital tax infrastructure, and fostering multilateral cooperation for information exchange to curb tax avoidance. The paper concludes that comprehensive reforms combining legal clarity, institutional capacity-building, and global collaboration are essential to ensure equity, compliance, and sustainable revenue generation in Nigeria’s evolving digital economy.