Amanze Chinonye
The Federal Government has introduced a one per cent presumptive tax on the annual turnover of certain informal sector businesses as part of a broader fiscal reform aimed at widening Nigeria’s tax base and improving revenue generation.
The policy, introduced under the administration of Bola Ahmed Tinubu, targets segments of the informal economy such as traders, mechanics, tailors, artisans and other small-scale operators who often function outside the formal tax system.
Under the framework, eligible businesses will pay a flat tax equivalent to one per cent of their annual turnover rather than profit. The simplified model is designed to make tax compliance easier for informal operators who typically do not maintain detailed accounting records.
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According to the government, the reform also contains protections for the smallest enterprises. Businesses classified as nano and small enterprises with annual turnover of ₦12 million or less are exempt from the tax, a measure intended to shield low-income entrepreneurs and micro-businesses from additional financial pressure.
The policy forms part of broader tax administration reforms coordinated by the Federal Ministry of Finance in collaboration with the Federal Inland Revenue Service to formalise economic activities that have historically remained outside the country’s tax system.
Addressing informal tax practices
Beyond the new levy, the government has also introduced administrative changes aimed at curbing abuses associated with informal tax collection.
Authorities have banned cash tax collections and roadside enforcement practices, methods that have long been criticised for encouraging illegal levies, harassment and multiple taxation of traders and transport operators.
Officials say the new framework encourages digital payment systems and the use of tax identification mechanisms to improve transparency and accountability in tax administration.
Nigeria’s informal sector accounts for a significant share of employment and commercial activity but contributes relatively little to structured tax revenue. Analysts say the adoption of a presumptive tax model where tax obligations are estimated using indicators such as turnover rather than full financial statements could help simplify compliance while expanding the country’s tax register.
The measure is one element of the broader fiscal reform agenda of the Tinubu administration, which seeks to strengthen public revenue, improve tax coordination across federal and subnational authorities, and gradually integrate informal economic actors into the formal economy.
However, economists note that the effectiveness of the policy will depend largely on its implementation and the ability of tax authorities to gain the trust of small business operators who have historically been wary of government taxation.
For many traders and artisans, the reform represents a delicate balance between expanding Nigeria’s tax base and avoiding policies that could place additional strain on small enterprises already grappling with rising operating costs and inflation.
Amanze Chinonye is a Staff Correspondent at Prime Business Africa, a rising star in the literary world, weaving captivating stories that transport readers to the vibrant landscapes of Nigeria and the rest of Africa. With a unique voice that blends with the newspaper's tradition and style, Chinonye's writing is a masterful exploration of the human condition, delving into themes of identity, culture, and social justice. Through her words, Chinonye paints vivid portraits of everyday African life, from the bustling markets of Nigeria's Lagos to the quiet villages of South Africa's countryside . With a keen eye for detail and a deep understanding of the complexities of Nigerian society, Chinonye's writing is both a testament to the country's rich cultural heritage and a powerful call to action for a brighter future. As a writer, Chinonye is a true storyteller, using her dexterity to educate, inspire, and uplift readers around the world.
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