Abstract
Background: The informal sector constitutes a significant portion of Nigeria's economy, yet tax revenue from micro, small, and medium enterprises (MSMEs) remains suboptimal. Tax accounting practices—encompassing record-keeping, tax awareness, and compliance procedures—are critical determinants of revenue collection. This study examines the relationship between tax accounting practices and revenue collection in Nigeria's informal sector, focusing on MSMEs in Lagos State. Methods: A mixed-methods design was employed, combining a structured survey of 420 MSME operators in Lagos State (selected via stratified random sampling) with secondary data from the Lagos State Internal Revenue Service. Descriptive statistics, Pearson correlation, and multiple regression analysis were used to assess the influence of tax accounting practices (record-keeping adequacy, tax knowledge, use of digital tools, and compliance cost) on revenue collected. Results: Findings reveal that record-keeping adequacy (β = 0.41, p < 0.001), tax knowledge (β = 0.28, p < 0.01), and digital tool adoption (β = 0.19, p < 0.05) significantly positively predict tax revenue, while compliance cost negatively affects revenue (β = -0.15, p < 0.05). MSMEs in the retail trade sector exhibited the lowest compliance rates. Descriptive statistics indicate that only 38% of sampled MSMEs maintain proper tax accounts, and revenue from informal sector taxes grew at an average annual rate of 6.2% between 2018 and 2025. Conclusions: Strengthening tax accounting practices through targeted education, simplified digital reporting platforms, and reduced compliance burdens can substantially enhance informal sector tax revenue. Policy recommendations include mandatory simplified bookkeeping for MSMEs, periodic tax literacy programmes, and incentives for voluntary digital adoption.
Keywords
tax accounting practices, revenue collection, informal sector, MSMEs, Lagos State, Nigeria, tax compliance, digital tax administration