Nigeria’s new tax authority begins expanding the revenue net
Nigeria’s newly established Nigeria Revenue Service (NRS) is developing a 1% informal sector tax Nigeria framework as part of sweeping fiscal reforms aimed at strengthening the country’s revenue generation capacity.
The proposal targets millions of traders, artisans and micro-enterprises operating outside the formal tax system — a sector economists estimate accounts for more than 50 percent of Nigeria’s total economic activity.
Officials involved in the policy design say the goal is to introduce a minimal tax contribution system that encourages voluntary compliance without imposing heavy burdens on small businesses.
The proposal forms part of the broader 2025 tax reform architecture that replaced the Federal Inland Revenue Service (FIRS) with the newly created Nigeria Revenue Service (NRS).
A new tax architecture under the 2025 reforms
The Nigeria Revenue Service (NRS) was created to modernise federal tax administration and improve coordination between federal and state revenue systems.
Under the reform structure:
- NRS serves as the central federal tax authority
- State Internal Revenue Services continue to collect state taxes
- The Joint Revenue Board (JRB) coordinates federal–state tax administration
- A Tax Ombudsman framework is expected to address disputes and taxpayer protection issues
The reforms were designed to increase Nigeria’s tax-to-GDP ratio, which has historically remained around 10 percent, significantly below the global average.
Finance officials believe bringing parts of the informal economy into a simplified tax structure could significantly boost national revenue without increasing tax rates on existing taxpayers.
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What the proposed 1% tax would look like
Under the emerging proposal, informal businesses could pay a flat 1 percent levy on turnover, replacing complicated filing requirements that many small enterprises currently struggle to understand.
Policy planners say the system would rely heavily on digital payment platforms and simplified registration tools.
Officials say traders could potentially register through mobile platforms, cooperative associations or market unions, allowing tax payments to be processed electronically.
One policy official familiar with the reform discussions said the framework aims to make tax compliance “simple, predictable and affordable for micro-business operators.”
Why Nigeria is targeting the informal sector
Nigeria’s informal economy is among the largest in Africa.
Data from the National Bureau of Statistics (NBS) suggests that the sector accounts for more than 80 percent of employment nationwide, including market traders, roadside vendors, transport operators, artisans and micro-service providers.
However, the vast majority of those businesses operate outside the formal tax system.
Economists argue that bringing even a small fraction of those enterprises into a simplified tax framework could significantly improve government revenue stability.
Nigeria’s fiscal dependence on oil earnings has long been identified as a structural weakness in the country’s economic model.
Expanding the tax base is therefore seen as critical to long-term fiscal sustainability.
Market groups warn against multiple taxation
Despite the potential benefits, the proposal has already raised concerns among trader associations and small business organisations.
Several market union leaders have warned that the policy must not create additional layers of taxation on businesses already facing local government levies and informal market fees.
Business groups have also called on the government to ensure that tax revenues collected from the informal sector translate into visible improvements in infrastructure, security and market facilities.
Policy planners acknowledge those concerns and say the reform aims to streamline — not multiply — existing taxes.
The larger fiscal reform strategy
The 1% informal sector tax proposal sits within a broader national effort to improve Nigeria’s fiscal capacity.
Authorities hope that simplified taxation, digital compliance systems and institutional reforms through the Nigeria Revenue Service could gradually increase tax participation across the economy.
However, economists say the success of the policy will ultimately depend on public trust, transparency and visible service delivery.
Without those elements, even a minimal tax levy could face resistance among small businesses already struggling with inflation, rising operating costs and economic uncertainty.
A delicate balancing act for fiscal reform
For Nigeria’s policymakers, the challenge lies in balancing two competing realities.
On one hand, the country urgently needs to expand government revenue beyond oil dependence.
On the other hand, millions of small businesses operate in fragile economic conditions where even modest tax burdens can trigger resistance.
The success of the 1% informal sector tax Nigeria proposal may therefore depend less on the rate itself — and more on whether the government can convince traders and micro-entrepreneurs that their contributions will translate into tangible public benefits.
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