A FINANCE-THEORETIC MATHEMATICAL MODEL FOR OPTIMAL TAXATION IN NIGERIA’S DIGITAL ECONOMY: REVENUE MAXIMIZATION AND COMPLIANCE STRATEGIES
Abdulgaffar Muhammad , Odiase Bernard O. , Iyamu Gloria Osasere , Osasogie Edo-Osagie , Ibrahim Moses Sunday, Anthony Kolade Adesugba, Osazemwinde, Osazuwa and Bojo Abdullahi
Volume 12 Issue 1
Abstract
The increasing prominence of Nigeria’s digital economy necessitates a theoretical re-evaluation of taxation policies to address compliance challenges and revenue optimization. Traditional tax structures, designed for physical transactions, fail to adequately capture income from digital platforms, leading to inefficiencies and potential revenue losses. This study presents a purely theoretical framework for optimal digital taxation, formulating a mathematical model grounded in game theory, behavioral economics, and differential equations. By modeling taxpayer utility functions and evasion dynamics, the study derives an optimal tax rate that maximizes compliance while ensuring revenue sustainability. A stability analysis of taxation policies is conducted, exploring equilibrium conditions for tax enforcement and the role of audit probabilities and penalty structures in minimizing evasion. Furthermore, theoretical insights into AI-driven tax audits and blockchain-based compliance mechanisms are discussed as potential enforcement strategies. Sensitivity analysis illustrates the adaptability of tax policies to economic fluctuations, ensuring long-term efficiency. This research contributes to the theoretical foundation of digital taxation, offering insights into how governments can design self-sustaining tax policies without reliance on empirical data. The findings provide policymakers with a strategic framework for tax optimization in the evolving digital economy. Keywords: Digital Taxation, Theoretical Modeling, Tax Compliance, Optimal Taxation, Game Theory, Block chain Enforcement 1. Introduction The rapid expansion of the digital economy has fundamentally transformed global trade, commerce, and financial transactions, creating significant challenges for tax authorities. In Nigeria, the rise of e commerce, fintech, digital services, and cryptocurrency transactions has introduced new complexities in tax collection and enforcement (OECD, 2020). Traditional tax systems, which were designed for tangible goods and l
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