Nigeria targets informal economy with new 1% turnover tax
Nigeria will impose a 1% presumptive tax on informal businesses starting in 2026, a move to broaden the government's revenue base by bringing unrecorded enterprises into a digital tax system.
Nigeria has established a presumptive tax framework that will levy a 1% charge on the turnover of informal businesses starting January 1, 2026. Issued under Section 29 of the Nigeria Tax Act 2025, the regulations replace profit-based calculations with assessments derived from location, transaction patterns and other economic indicators. A separate 2% presumptive capital gains tax applies to qualifying transactions.
The policy does not sweep up every micro-enterprise. Nano businesses generating less than N12 million annually are exempt, alongside taxpayers already maintaining reliable financial records or those covered by existing exemptions. The framework is explicitly targeted at operators where conventional income determination remains practically impossible.
For the Nigerian government, this represents a direct mechanism to broaden a narrow tax base in an economy where informal operations dominate. Olufemi Michael Olarinde, head of Fiscal and Tax Reforms Implementation at the Nigeria Revenue Service (NRS), said the rules are intended to provide "clarity, certainty and uniformity" in taxing the informal economy.
The new rules also mandate a structural shift away from cash handling. All presumptive tax payments must be processed electronically through USSD codes, point-of-sale terminals, mobile applications or licensed financial technology platforms. Roadside and cash collections are expressly prohibited, a restriction designed to curb illegal extraction and improve state transparency.
This digital mandate carries secondary implications for Nigeria's fintech sector, which is now positioned as the primary infrastructure for state revenue collection. Furthermore, affected businesses are required to obtain a Tax Identification Number (TIN), integrating previously untracked operators into the government's formal financial architecture.
Rather than acting as a permanent trap, the presumptive tax is structured as a bridge to the formal economy. Companies that develop adequate accounting practices can transition out of the regime and into the standard self-assessment system. Tax adviser Temitayo Ogunyemi noted that this approach reflects the varying stages of business development rather than applying a uniform standard.
“The greatest advantage under Nigeria’s evolving tax framework is not paying a lower percentage. It is understanding where your business fits within the system and making informed decisions as your business grows,” Ogunyemi said. To handle compliance friction, the regulations designate the Tax Ombud as an alternative dispute resolution channel for administrative complaints.
