Impact of Tax Penalties on Compliance Behaviour in the Nigerian Banking Sector

This study investigates the impact of tax penalties and associated enforcement actions on compliance behaviour among commercial banks in Nigeria. The banking sector, as a highly regulated industry, is subject to rigorous tax compliance oversight by the Federal Inland Revenue Service, particularly regarding companies income tax, withholding tax on interest payments, and education tax. High-profile penalty assessments against major banks in recent years have raised questions about whether such measures improve systemic compliance or primarily generate revenue disputes. The study adopts a descriptive survey approach, collecting data from 80 senior finance and tax professionals employed by banks headquartered or with major operations in Lagos. A structured questionnaire measures awareness of penalty provisions, experience with FIRS penalty assessments, perceived deterrent effects, and changes in internal compliance practices following enforcement actions. Secondary data from published FIRS enforcement reports complement primary findings. Descriptive statistics and logistic regression are applied. The study expects to find that the threat of significant financial penalties strongly motivates banks to invest in internal tax compliance functions, but that the opacity of penalty computation and limited appeal mechanisms reduce perceived fairness. Recommendations include publishing clear penalty computation guidelines, improving the efficiency of the Tax Appeal Tribunal process, and recognising proactive disclosure as a mitigating factor in penalty assessment. Keywords: tax penalties, compliance, banking sector, FIRS, enforcement.