Nigeria presumptive tax informal sector 2026
Nigeria has taken a decisive step toward overhauling how it taxes its sprawling informal economy.
The federal government has introduced a new presumptive tax framework a key piece of the wider
Nigeria Tax Act (NTA) 2025 designed to bring millions of micro and small enterprises into a structured, fair, and transparent revenue system, while shielding the most vulnerable entrepreneurs from undue financial pressure.
A Long Overdue Reform
Nigeria’s informal sector has long been the backbone of the country’s economy, accounting for
more than 80% of total employment.
Yet, for decades, this vast economic engine contributed only a fraction of government revenue.
The gap was not simply a matter of avoidance it also reflected the chaos of a fragmented tax system riddled with arbitrary assessments, roadblocks, and cash based collections by local tax officials.
Many small business owners operated in the shadows not out of defiance, but out of fear of inconsistent enforcement and high compliance costs.
The new framework, signed by Minister of Finance and Coordinating Minister of the Economy,
Wale Edun, marks a clear break from that past.
It aims to replace disorder with structure, and intimidation with inclusion.
Who Qualifies and What Do They Pay?
Under the new regulations, informal sector businesses with an annual turnover below ₦12 million — classified as nano and small enterprises are fully exempt from the presumptive tax.
This threshold is a deliberate move to protect subsistence level entrepreneurs and low-income traders who form the base of Nigeria’s informal market.
For qualifying informal businesses that do fall within the taxable bracket, a flat rate of 1% of turnover applies.
This replaces the complex record-keeping requirements that had previously made compliance near-impossible for small operators with no formal accounting systems.
Turnover-band assessments now take the place of discretionary enforcement, offering clarity and predictability.
- 1% flat turnover tax for qualifying informal businesses
- Full exemption for businesses earning below ₦12 million annually
- Ban on roadblocks and cash collections by tax officials
- Prohibition of arbitrary “best of judgment” tax assessments
- Mandatory use of digital tax identification platforms
- Aligned enforcement between federal, state, and local tax authorities
Ending Coercive Practices
One of the most significant aspects of the new framework is its crackdown on coercive
and informal tax practices.
The government has explicitly banned roadblocks and cash-based collections by tax officials practices that have long plagued market traders, artisans, and transport workers across the country.
In their place, digital tax identification platforms will be used to ensure traceability, reduce leakages, and
promote accountability.
“Our objective is to ensure consistency, prevent arbitrary assessments and protect small
businesses while ensuring the continued growth of the Nigerian economy.”
The Executive Secretary of the Joint Revenue Board, Olusegun Adesokan, also stressed that the regulations were jointly developed to align federal, state, and local tax authorities addressing the long-standing fragmentation that had made fair enforcement nearly impossible.
The regulators’ role is coordination and not fragmentation,” he stated.
Broadening the Tax Base Without Raising Rates
A central philosophy driving this reform is expanding who pays taxes, not how much they pay.
Nigeria’s tax-to-GDP ratio has historically remained low compared to its African peers, not because of high rates, but because a huge proportion of economic activity sits entirely outside the formal revenue system.
By bringing informal businesses into the fold through a low burden, transparent mechanism, the government hopes to build a more sustainable revenue base one that is less dependent on oil receipts and more reflective of Nigeria’s diverse economic activity.
The Nigeria Tax Administration Act (NTAA) complements this effort by requiring all taxable individuals and businesses to obtain a Tax Identification Number (TIN), making registration a gateway to the broader financial ecosystem.
This move is expected to narrow the financial inclusion gap, enabling previously excluded entrepreneurs to access credit, insurance, and government support programmes.
Challenges on the Road Ahead
Despite the reform’s promise, implementation will not be without hurdles.
Many informal sector operators remain unfamiliar with the new framework, and low digital literacy
particularly in rural areas may make the mandatory e-invoicing system difficult to adopt.
Analysts at PwC Nigeria and KPMG Nigeria have both flagged stakeholder readiness as a key concern, noting that the learning curve could delay full implementation and create unintentional non-compliance in the short term.
Still, if properly executed, this framework could serve as a turning point for Nigeria’s fiscal landscape one where small businesses are seen not as targets, but as partners in building a stronger, more accountable economy.
