Nigeria's informal economy remains one of the largest untapped sources of tax revenue, with millions of micro-enterprises operating outside the formal tax system. In response, legislative and administrative reforms have introduced simplified tax return mechanisms aimed at making compliance easier for the smallest businesses.
The rationale is straightforward: traditional tax filing processes, with their complex schedules and professional accounting requirements, are ill-suited to a market trader, roadside mechanic, or home-based caterer. A simplified return reduces the compliance burden to a handful of lines—typically capturing turnover, allowable deductions, and tax payable—without requiring the detailed financial statements that larger entities must submit.
Under Nigeria's multi-tier tax architecture, unincorporated micro-enterprises fall under the Personal Income Tax Act, administered by State Internal Revenue Services. Many states have embraced presumptive tax models that estimate liability based on observable indicators such as business type, location, and estimated turnover, rather than requiring audited accounts. This approach acknowledges the reality that most informal operators do not maintain formal books of records.
The Federal Inland Revenue Service has also carved out space for small businesses under the Companies Income Tax regime. Companies with annual turnover below ₦25 million are exempted from paying corporate tax, while those earning between ₦25 million and ₦100 million benefit from a reduced rate. However, the truly informal micro-enterprise—often unregistered and operating in cash—remains largely beyond the reach of federal corporate tax. Reaching this segment requires state-level coordination and simplified filing pathways.
A key feature of the simplified return framework is its accessibility. Designed to be completed without professional tax assistance, these forms reduce the cost of compliance for businesses whose margins cannot support accountant fees. Tax authorities have complemented the simplified paperwork with digital filing options, mobile payment integrations, and taxpayer education campaigns delivered in local languages.
The reform is not merely administrative; it carries a strategic fiscal purpose. Nigeria's tax-to-GDP ratio has long languished among the lowest globally, constrained by a narrow base that leans heavily on formal-sector employees and large corporations. Broadening the base to include informal micro-enterprises—even at modest effective rates—could materially improve revenue over time while building a culture of tax compliance from the ground up.
Critics note that simplified returns alone cannot overcome deeper structural challenges: weak enforcement, taxpayer distrust, and the absence of visible public services in many communities where informal businesses operate. Supporters counter that lowering the entry barrier is a necessary first step, and that subsequent compliance can be nurtured through incentives tied to tax payment, such as access to credit, government contracts, and social insurance schemes.
The push to formalise micro-enterprises through simplified returns reflects a pragmatic recognition that the informal sector will not simply disappear. Instead, tax policy is adapting to meet it where it is—on the street, in the market, and at the roadside workshop.
