Nigeria Implements 1% Presumptive Tax for Informal Sector, Bans Cash Collection

The Nigerian federal government has introduced a 1% presumptive tax on the annual turnover of businesses operating within the informal sector, aiming to broaden the tax base and enhance revenue generation. This fresh policy, formalized through the Presumptive Tax Regulations framework, also prohibits cash collection of taxes and the mounting of roadblocks for tax enforcement.

What the New Tax Entails

The presumptive tax applies to eligible informal businesses and is calculated as 1% of their annual turnover. This approach utilizes estimated income, simplifying tax collection for businesses that may not maintain detailed financial records – a common practice in many developing economies. The goal is to ease tax compliance and encourage broader participation in national development through contributions.

Targeting Nigeria’s Informal Economy

Nigeria’s informal sector constitutes a significant portion of its economic activity. The policy targets millions of small-scale businesses currently outside the formal tax system, including:

• Market traders
• Mechanics and auto technicians
• Tailors and fashion designers
• Barbers and hairdressers
• Artisans and small service providers

By implementing the 1% presumptive tax, the government intends to expand the tax net without imposing complex procedures on small business owners.

Part of Broader Economic Reforms

This tax policy is part of the Bola Ahmed Tinubu administration’s ongoing economic reforms, designed to strengthen public revenue and reduce reliance on oil earnings. Improved tax collection from the informal sector is expected to provide increased funding for infrastructure, healthcare, education, and social programs. The reform also supports efforts to modernize Nigeria’s tax administration and encourage businesses to transition into the formal economy.

Key Features of the Regulations

The Presumptive Tax Regulations framework, signed by the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, includes several key provisions:

• Exemption for Nano and Small Businesses: Businesses with an annual turnover of ₦12 million and below are exempt from the tax.
• Simplified Tax Collection: The 1% tax on turnover is intended to be straightforward and easy to administer.
• Elimination of Cash Payments: Cash-based tax collection is prohibited, encouraging the use of technology-driven payment systems.
• Ban on Roadblocks: The mounting of roadblocks or any informal means of tax enforcement is prohibited.
• Digital Onboarding: The regulations aim to facilitate the seamless onboarding of informal businesses into the formal economy through structured digital platforms.

Economic Growth and Targets

Nigeria’s economy recorded growth above 4% in the last quarter of 2025, and the government is targeting 7% GDP growth in the immediate term, with a broader strategy to achieve President Tinubu’s vision of a $1 trillion economy by 2030. [Finance.gov.ng]

Concerns and Implementation

While the government emphasizes simplification, some small business operators have expressed concerns about the potential impact of the tax, particularly given existing economic pressures like inflation and currency instability. Supporters argue that a 1% rate is relatively low and promotes fairness by ensuring broader participation in contributing to national revenue.

Authorities are expected to release further details regarding implementation, including registration requirements, methods for estimating annual turnover, and payment channels. Successful implementation will be crucial to achieving the policy’s goals without hindering small-scale entrepreneurship.