FG Introduces 1% Presumptive Tax for Small Businesses
- The federal government has introduced a 1% presumptive tax targeting the informal sector
- The policy aims to expand the tax base and increase government revenue from small traders
- Officials say the simplified tax system will encourage compliance and bring more informal businesses into the formal economy
Legit.ng journalist Dave Ibemere has experience in business journalism, with in-depth knowledge of the Nigerian economy, the stock market, and broader market trends.
The federal government has introduced a new tax framework that imposes a 1% presumptive tax on certain businesses in the informal sector.
Presumptive taxation is the use of indirect means to ascertain tax liability, different from the usual rules.
Source: Getty Images
The move is part of efforts to widen the country’s tax base and reform tax collection from small enterprises.
The policy is being implemented through the Federal Inland Revenue Service, which has also banned tax officials from collecting payments in cash.
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Authorities say the move is aimed at reducing illegal levies, harassment of traders, and revenue leakages that have long affected small business operators.
The informal sector includes hairdressers, tailors, carpenters, mechanics, traders, artisans, barbers, food vendors, transport operators, and other small-scale service providers who often operate outside formal regulatory systems.
Presumption tax for the informal sector
Under the new system, eligible informal businesses will pay a tax calculated as 1% of their annual turnover, instead of undergoing the more complex profit-based tax assessment used for larger registered companies.
The framework mainly targets micro and small enterprises that often operate without detailed financial records.
Officials say the reform is designed to simplify taxation for small enterprises while ensuring that more businesses contribute to government revenue.
MSME reports that by applying a flat percentage on sales rather than profit calculations, the policy is expected to make tax compliance easier for traders, artisans, and small service providers who typically do not maintain formal accounting systems.
Source: Getty Images
Formal tax payment
The reform could have mixed implications for small and medium-sized enterprises.
On one hand, the introduction of a clear tax structure could reduce the multiple unofficial levies many business owners face from different authorities.
The ban on cash tax collection is also expected to improve transparency and limit situations where traders are pressured into making undocumented payments to field officers or local agents.
For many small businesses, the reform could mark the beginning of a broader push toward formalisation, potentially enabling businesses that join the tax system to gain better access to government support programmes, financing opportunities, and formal markets.
Do Nigerians abroad pay tax in two countries?
Earlier, Legit.ng reported that when Nigeria’s new tax reforms were announced ahead of their 2026 rollout, Nigerians living abroad expressed concerns, amplified by several social media posts, that foreign income and remittances would soon be taxed.
For many in the diaspora who regularly support family members back home, the fear was immediate and personal.
This was quickly debunked by the Presidential Fiscal Policy and Tax Reforms Committee in a clarification released on X that much of that concern is based on misinformation.
At the centre of the message is a simple point: income earned abroad and merely brought into Nigeria is not taxable.
Source: Legit.ng
