Nigeria's informal sector has long represented a significant portion of economic activity that falls outside the tax net, not necessarily by design but often due to the complexity and cost of compliance. Recognising this, recent legislative amendments have introduced simplified tax return mechanisms designed to bring micro-enterprises into formal tax registration without imposing the administrative burden associated with conventional corporate filings.
The centrepiece of this effort is the presumptive tax regime, which allows qualifying businesses to compute their tax liability based on turnover rather than audited financial statements. Under the Companies Income Tax Act, as amended by successive Finance Acts, small companies with annual gross turnover below N25 million are exempt from Companies Income Tax altogether. Medium-sized companies with turnover between N25 million and N100 million benefit from a reduced tax rate, currently set at 20 percent.
For unincorporated micro-enterprises and individuals operating in the informal economy, the Personal Income Tax Act provides a graduated tax scale with a simplified filing process. Several state internal revenue services have also rolled out sector-specific presumptive tax schedules that assign fixed annual tax amounts to artisans, traders, transport operators and other informal service providers based on observable indicators such as shop size, location and type of activity.
The Federal Inland Revenue Service has complemented these statutory provisions with technology-driven solutions that allow taxpayers to register, file returns and make payments through online platforms. The TaxPro Max system, for instance, consolidates filing obligations into a single portal and generates pre-populated returns for eligible small taxpayers.
What distinguishes this approach from previous formalisation drives is the deliberate reduction of friction at the point of entry. Micro-enterprise owners are not required to engage professional accountants or produce audited accounts. A simple declaration of turnover, supported by basic business records, suffices for filing purposes. This design acknowledges the reality that many informal operators maintain limited documentation and cannot afford professional services.
The policy rationale is twofold: to widen the tax base by capturing economic activity that currently escapes assessment, and to build a culture of compliance among businesses that may eventually grow into the medium and large taxpayer categories. By offering a low-barrier entry point, the tax system creates a pathway for gradual formalisation rather than demanding immediate full compliance.
Challenges remain, however. Many informal operators remain unaware of the simplified filing options available to them, and trust deficits between taxpayers and revenue authorities persist. Effective outreach and consistent service delivery will determine whether the legislative intent translates into measurable gains in taxpayer registration and voluntary compliance.
