Electronic Tax System and Tax Compliance in Nigerian Informal Sector

Abstract

The globalization and increasing fiscal scrutiny, tax compliance have become critical issues for governments, businesses, and individuals. This study focused on evaluating the effect of electronic tax systems on tax compliance within Nigeria's informal sector. The study employed a survey research design, using a well-structured questionnaire to collect primary data from artisans, street vendors, small-scale traders, service providers, and other self-employed individuals in Southwest Nigeria. These individuals often operate informally without registering their businesses or paying taxes. A total of 700 questionnaires were distributed, and 651 were completed and returned. The questionnaire utilized a 5-point Likert scale, and a purposive sampling technique was used to target respondents relevant to the study's objectives. The reliability of the questionnaire was confirmed through a Cronbach Alpha test. Data were analysed using both descriptive statistics (mean, variance, skewness, kurtosis) and inferential statistics (correlation and regression analysis) to summarize findings and draw conclusions about the population. Through regression analysis, the study revealed that electronic tax systems, including electronic tax filing, billing, and payments, had a positive and significant impact on tax compliance. The results showed that businesses within the informal sector were more likely to adhere to tax regulations, such as timely filing and payment, when using these systems. This study concluded that the adoption of electronic tax systems has a substantial and positive influence on tax compliance within Nigeria's informal sector. In line with the findings of this study, it was recommended that government should continue expanding access to electronic tax systems, particularly in the informal sector, by providing digital infrastructure and promoting awareness.