Tax Compliance, Informality, and Revenue Leakages in Nigeria: Institutional and Behavioural Perspectives

Abstract

Tax revenue remains an essential source of government funding for sustainable economic growth. However, Nigeria faces significant revenue losses primarily due to widespread informality and low tax compliance. This study examines taxpayer behavior, the influence of the informal sector, and institutional factors that lead to revenue leakages from both institutional and behavioral perspectives. It employs an exploratory research approach grounded in institutional theory and behavioral tax compliance models to analyze taxpayers’ attitudes towards taxation. Findings indicate that low institutional trust, complicated tax systems, perceived corruption, and weak enforcement promote informality and evasion. Behavioral elements such as perceived fairness, social norms, and tax morale also influence individuals' and small businesses' compliance choices. The study suggests that enhancing institutional credibility, streamlining tax processes, and boosting behavioral incentives are vital for reducing revenue loss and broadening Nigeria’s tax base. Policy recommendations emphasize digital tax administration, transparency reforms, and taxpayer education initiatives.