FG implements 1% turnover tax on informal sector, outlaws roadside and cash tax enforcement
The Federal Government has introduced a new tax framework that imposes a 1 percent presumptive tax on certain informal businesses while also banning cash-based tax collections and roadside revenue enforcement across the country.
The policy, announced as part of Nigeria’s broader tax administration reforms, is aimed at formalizing the vast informal sector, improving transparency in revenue collection, and eliminating widespread complaints about harassment and illegal levies by revenue agents.
Nigeria’s informal sector, which includes market traders, artisans, transport operators, and small service providers, accounts for a large portion of economic activity and employment in the country.
However, it has historically contributed relatively little to structured tax revenue due to fragmented tax systems, weak enforcement mechanisms, and a lack of clear frameworks for assessing taxes on small and unregistered businesses.
The newly introduced presumptive tax system is designed to simplify tax compliance for these businesses by applying a flat rate based on turnover rather than requiring complex financial records or profit calculations.
Under the policy, informal businesses above a defined threshold will pay a tax equivalent to 1 percent of their turnover. The approach is intended to provide a predictable and easy-to-understand tax obligation for micro and small enterprises while expanding the government’s tax base.
According to officials involved in the reform, the system also ensures that the smallest businesses are not unfairly burdened, as enterprises with very low annual turnover will be exempt from the levy.
A key component of the reform is the complete prohibition of cash tax collections by government agents. For years, many businesses across Nigeria have been forced to make cash payments to tax officials or revenue agents operating at markets, motor parks, and roadside checkpoints.
These practices often created opportunities for corruption, extortion, and unrecorded revenue leakages. Under the new regulation, all tax payments must now be made through approved digital platforms or official payment channels, allowing authorities to track transactions and ensure proper remittance into government accounts.
In addition to banning cash collections, the Federal Government has also outlawed roadside tax enforcement and revenue roadblocks.
This move is expected to significantly reduce the harassment of traders and transport operators who are frequently stopped by multiple revenue collectors demanding various levies.
The government believes eliminating these roadblocks will improve the business environment, reduce illegal taxation, and enhance trust between taxpayers and authorities.
Officials say the reform is part of a wider effort to modernize Nigeria’s tax system, expand the tax net, and align revenue collection with global best practices.
The initiative is also expected to support ongoing efforts to integrate informal businesses into the formal economy by encouraging them to register, obtain tax identification numbers, and maintain basic financial records.
Despite these concerns, the government believes the reform represents a major step toward creating a more transparent, efficient, and equitable tax environment.
By eliminating cash collections, banning roadblocks, and introducing a simplified tax structure for informal businesses, authorities hope to curb revenue leakages, improve compliance, and strengthen Nigeria’s fiscal capacity at a time when the country is seeking to boost non-oil revenue sources.
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