The Federal Government of Nigeria has formally implemented a 1% presumptive tax on the annual turnover of businesses operating within the informal sector, a move designed to broaden the nation’s tax base and bolster revenue generation. The policy, signed into regulation by Finance Minister Wale Edun, prohibits cash-based tax collection and the use of roadblocks for tax enforcement, signaling a shift towards modernized tax administration.
The new tax regime targets a segment of the economy encompassing traders, mechanics, tailors, artisans and other self-employed individuals who traditionally operate outside the formal tax system. Authorities estimate the informal sector accounts for over 80% of Nigeria’s workforce and approximately 57.2% of its Gross Domestic Product, yet contributes disproportionately little to public revenue. The presumptive tax aims to address this disparity by applying a simplified tax calculation based on estimated income.
Under the regulations, businesses with an annual turnover of ₦12 million (approximately $8,000 USD based on current exchange rates) and below are exempt from the tax. Those exceeding this threshold will be subject to the 1% levy on their annual turnover. The government intends to facilitate compliance through structured digital platforms, encouraging technology-driven payment systems and streamlining the onboarding process for informal businesses.
“These Regulations are anchored on Mr. President’s commitment to ‘taxing prosperity, not poverty,’” stated Minister Edun, emphasizing the policy’s focus on fairness and economic inclusion. The framework aims to provide a “simple, increased transparent, fairness, clarity, economic inclusion, consistency and prevention of arbitrary taxation and equitable framework” for administering the tax, according to a statement released by the Ministry of Finance.
The introduction of the presumptive tax is part of a wider fiscal reform agenda initiated by the Bola Ahmed Tinubu administration. Nigeria’s economy recorded growth above 4% in the last quarter of 2025, a momentum the government hopes to build upon, targeting 7% GDP growth and a $1 trillion economy by 2030. Improved tax collection, particularly from the informal sector, is viewed as crucial to funding infrastructure, healthcare, education, and social programs.
The Nigerian Revenue Service (NRS) has been tasked with implementing the new system, with Olufemi Olarinde, head of Fiscal and Tax Reforms Implementation at the NRS, explaining that the presumptive tax is designed to address the “structural realities of informal work.” He noted that many informal businesses, such as roadside vulcanizers and barbershops, operate without maintaining formal financial records.
While the government asserts the policy will simplify tax compliance, concerns have been raised regarding its potential impact on small business owners already grappling with economic challenges. Critics suggest that even a 1% tax could pose an additional burden given existing inflationary pressures and currency instability. However, proponents argue the rate is relatively low compared to conventional tax systems and promotes a more equitable contribution from all economic participants.
Authorities have yet to release detailed guidelines on the registration process for informal businesses, methods for estimating annual turnover, and specific payment channels. The Ministry of Finance has indicated that further information will be forthcoming, emphasizing the importance of proper implementation to avoid discouraging entrepreneurship within the informal sector. The next steps involve sub-national governments implementing the uniform framework established by the federal regulations.
