Nigeria’s Federal Inland Revenue Service (FIRS) has unveiled a real-time digital platform designed to monitor all VAT-eligible electronic transactions, a move aimed at curbing tax leakages in the country’s booming digital economy. Dubbed the Transaction Monitoring System, the platform will require integration from banks, card schemes, fintechs, and payment service providers (PSPs). The system forms part of FIRS’s broader strategy to enforce compliance and transparency in an industry that has rapidly outpaced traditional tax oversight mechanisms.
Centralised Tracking for VAT Compliance
The Transaction Monitoring System allows FIRS to view transactions as they occur, enabling it to track VAT-eligible payments across Nigeria’s financial ecosystem. Though the platform does not process tax collections directly, it provides real-time visibility through a central dashboard, facilitating accurate assessments and audits. This capability is especially important for micro-transactions, which until now have largely gone unmonitored due to reporting thresholds imposed on banks.
Leadership Endorsement and Strategic Intent
FIRS Executive Chairman Zacch Adedeji described the system as a “transformative leap” for Nigeria’s tax infrastructure. He emphasized that real-time monitoring fosters a more transparent and equitable digital marketplace. By plugging directly into financial institutions' systems, the agency can audit declared taxes against actual bank records and uncover inconsistencies that previously slipped through regulatory cracks.
Technology-Enabled Monitoring for the Digital Age
The platform is built around real-time data collection and automated monitoring, with advanced features like encryption and AI-based validation to ensure the integrity of every transaction. These technologies enable FIRS to cross-check financial data with taxpayer self-assessments and ensure only net taxable income is considered. While transaction data alone is not definitive proof of tax liability, it serves as a vital baseline for further validation.
Legal Foundation and Enforcement Timeline
New legislation signed into law in June 2025 under President Bola Tinubu’s administration gives FIRS the authority to automate tax processes, including data collection and assessment. Although the enforcement provisions officially take effect in January 2026, FIRS is leveraging Section 25(4) of the existing FIRS Act to issue a 30-day compliance notice to institutions. Steep penalties will apply for non-compliance, including a $652 fine on the first day of failure and $6.50 for each subsequent day.
Integration with Financial Systems in Progress
To operationalize the system, FIRS has conducted several onboarding sessions with financial institutions via virtual meetings. Institutions are required to register on the platform, integrate via APIs, and activate their monitoring dashboards. This infrastructure allows FIRS to receive and process transaction data through its VAT Rev Assure tool, ensuring VAT is correctly calculated before payments are finalized.
Specific Guidelines for PSPs and Banks
For PSPs like Paystack and Flutterwave, obligations vary depending on how VAT is applied during checkout. If VAT is excluded at the point of sale, PSPs must calculate it on the full transaction value and report it. All institutions, regardless of structure, are required to submit both VAT and gross payment data for every relevant transaction, using a secure portal with real-time reporting features.
Enhanced Data Flow and Refund Handling
The integration design allows institutions to submit real-time transaction records, including detailed VAT breakdowns for merchants and consumers. Once submitted, the data is categorized and logged in the Transaction Monitoring System for ongoing reference and audit purposes. A dedicated support system has been introduced to handle refunds and resolve discrepancies swiftly.
With the introduction of the Transaction Monitoring System, FIRS is setting a new benchmark for tax compliance in Nigeria’s digital economy. The move brings increased transparency to millions of daily transactions and ensures that VAT is tracked, calculated, and eventually collected more accurately. As the regulatory framework catches up with digital innovation, Nigeria is taking decisive steps to modernize its tax architecture and protect national revenue streams in the digital age.
source: Techcabal