Nigeria Introduces New Tax Aimed at Broadening Revenue Base, Sparking Debate
LAGOS, Nigeria – The Nigerian government has introduced a 1% presumptive tax on the annual turnover of businesses operating in the country’s vast informal sector, a move officials say is designed to expand the tax base and fund critical public services. The policy, part of the 2025/2026 fiscal reform agenda, targets millions of small-scale traders, artisans, and service providers who currently operate outside the formal tax system.
Nigeria’s informal economy is substantial, encompassing a significant portion of the nation’s economic activity. The new tax aims to simplify compliance for these businesses, many of whom do not maintain formal accounting records. Instead of complex tax procedures, the government will estimate income and apply the 1% levy.
“This is about bringing more citizens into contributing to national development and making tax compliance easier,” a government official stated, according to reporting by BusinessDay.
The move comes as the administration of Bola Ahmed Tinubu seeks to strengthen public revenue and lessen the country’s reliance on oil earnings. Nigeria’s economy saw growth above 4% in the last quarter of 2025, a positive trend the government hopes to build upon with increased revenue, officials say. Improved tax collection is intended to bolster funding for infrastructure, healthcare, education, and social programs.
However, the new tax has already drawn criticism from some small business owners and analysts. Concerns center on the potential burden on entrepreneurs already grappling with economic pressures like inflation and currency instability. Critics argue that even a small percentage tax could disproportionately impact low-income earners.
Supporters counter that the 1% rate is relatively low compared to conventional tax systems and promotes fairness by ensuring a broader base of economic participants contribute to public funds.
The implementation of the presumptive tax is being closely watched. Authorities are expected to release details regarding registration requirements, methods for estimating annual turnover, and payment procedures. Successful implementation, experts say, will be crucial to achieving the policy’s goals without stifling entrepreneurship.
The introduction of this tax regime mirrors similar approaches adopted in other developing economies, including Zimbabwe, which recently implemented a presumptive tax system to widen its own revenue base. The move reflects a growing global trend towards simplifying tax collection from the informal sector.
The government hopes the reform will encourage a gradual transition of businesses into the formal economy and modernize Nigeria’s tax administration. The effectiveness of this strategy remains to be seen, but it represents a significant step in Nigeria’s ongoing efforts to reform its tax system and diversify its revenue sources.
