Taxation of the Digital Economy: Emerging Issues, Administrative Challenges, and Policy Options for Nigeria

The rapid expansion of the digital economy has fundamentally transformed global business operations, challenging traditional tax systems that rely on physical presence and territorial nexus. Digital business models enable multinational enterprises to generate substantial economic value across jurisdictions with little or no physical establishment, thereby increasing the risks of base erosion, profit shifting, and inequitable allocation of taxing rights. This paper examines the taxation of the digital economy with particular reference to Nigeria. It explores the defining characteristics of digital economic activities, including reliance on intangible assets, user participation, digital platforms, and cross-border service delivery, and analyses the resulting challenges for tax administration and compliance. The study further reviews international initiatives, particularly the OECD/G20 Base Erosion and Profit Shifting (BEPS) framework and the Two-Pillar Solution, alongside Nigeria's legislative and administrative responses, including the Significant Economic Presence (SEP) rules introduced through the Finance Acts. Using doctrinal and comparative policy analysis, the paper identifies persistent challenges, including regulatory gaps, limited technological capacity, difficulties in identifying taxable digital activities, and weak international coordination. It recommends strengthening Nigeria's digital tax framework through enhanced legislation, greater international cooperation, adoption of advanced digital technologies for tax administration, and improved compliance mechanisms. The study concludes that although Nigeria has made significant progress in adapting its tax system to the digital economy, sustained legal, institutional, and technological reforms are essential to achieving an equitable, efficient, and sustainable digital taxation regime.