Nigeria employs a new framework of a 1 percent turnover levy to tax an informal work force of about 80 percent. This reflects a push to improve transparency and bring all economic activity into the tax net.
The new regulations, signed by Finance Minister Wale Edun, outline how the system will work in practice. Businesses earning N12 million or less annually are exempt, while others in the informal sector will pay 1 percent of their turnover.
The framework also bans cash tax collection and roadside enforcement, pushing payments through digital channels.
With only about 34 percent of informal businesses keeping detailed records, according to a Moniepoint survey, traditional income-based taxation has proven difficult to enforce.
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According to tax experts, the reform reduces the level of discretion previously exercised by tax officials, while providing businesses with greater clarity on what they are expected to pay.
“This regulation is essentially replacing uncertainty with predictability,” said Adeyemi Micheal, a tax partner at Andersen, during a recent policy discussion.
“Before now, businesses could not anticipate what their tax would be. Now, there is a defined basis,” he explained
Before the enforcement of the new tax law, Tobeshe hair salon, a salon based in Lagos, was assessed at an amount of N150,000 using no specified framework.
This is a story for many other informal businesses, which reflects the very system the government is now seeking to dismantle, one where tax liabilities were not only unclear but often subject to negotiation.
By applying a fixed percentage to turnover, the government is moving away from guesswork toward a more predictable system of tax collection. This makes it easier to plan revenue and reduces the uncertainty that comes with estimating what informal businesses earn.
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It also expands the tax base. Nigeria’s challenge has long been that too few people and businesses pay tax, not necessarily that rates are too low.
Bringing more informal operators into the system could gradually improve the country’s tax-to-GDP ratio and strengthen public finances over time.
At the same time, the framework supports a move toward more data-driven taxation. With digital payments and structured onboarding, informal business activity becomes easier to track, giving the government better visibility into a large part of the economy that has traditionally been difficult to measure.
Finance Minister Wale Edun said formalising the informal sector is central to achieving inclusive and sustainable growth. “We must grow the Nigerian economy across all sectors, micro, small, medium, and large enterprises; domestic and foreign investors; and Nigerians in the diaspora. A fair and predictable tax system is critical to that growth,” he said.
However, the impact will not be the same for all businesses.
“Many assume that presumptive tax is a simplified and even easier tax option. In reality, it is not,” said Chukwuma Ubendu, Managing Partner at CUJ Consulting Ltd, in a LinkedIn post
Because the tax is based on turnover rather than profit, small operators with low margins may feel the pressure more. Some may respond by increasing prices, while others may struggle to comply fully.
The policy also aims to reduce informal levies by banning cash collections and roadside enforcement, which could improve the business environment if properly implemented.
At a broader level, the policy reflects a deliberate move by the government to prioritise visibility and ease of collection in a sector that has long been difficult to tax.
For policymakers, the expectation is that the new system will not only broaden the tax base but also reduce the multiple and often informal levies imposed across different levels of government.
For operators like Bamidele, the shift from negotiated assessments to a fixed framework promises greater clarity on what they owe, but also removes the flexibility that once allowed them to bargain down their liabilities.
As Nigeria moves to standardise taxation in its informal sector, the real test will be whether the new system delivers on its promise, replacing uncertainty and arbitrariness with a structure that is not only predictable but also fair to the millions of small businesses it seeks to bring into the tax net.