FG Bans Cash Collection, Roadblocks as 1% Presumptive Tax Kicks Off for Informal Sector

The federal government has unveiled new presumptive tax regulations banning cash collection of taxes and the mounting of roadblocks for tax collection in the informal sector. The framework, signed by the Joint Revenue Board (JRB) in Abuja, aims to eliminate informal, coercive, and fragmented tax practices, particularly at the subnational level. Executive Secretary Olusegun Adesokan announced that nano and small businesses with annual turnover of N12 million and below are exempted from tax under the presumptive regime.

All other categories of informal businesses will pay a 1% tax on turnover, with an emphasis on technology-driven payment platforms. Finance Minister Wale Edun stated the reforms mark a transition from legislative approval to structured implementation, aiming to expand the tax base rather than increase rates. The guidelines provide a uniform structure for subnational governments to tax the commerce sector and integrate operators into the formal system through a tax identification platform.

Key Points

The ban on cash collection and roadblocks eliminates opportunities for extortion and harassment of informal traders.
The N12 million turnover exemption protects the smallest businesses from additional tax burden.
The 1% rate on turnover (rather than profit) may still challenge businesses with thin margins.
Technology-driven payment platforms aim to bring transparency and efficiency to informal sector taxation.
The reforms attempt to address the paradox of the informal sector dominating employment but contributing little to public revenue.

Nigeria’s new presumptive tax framework seeks to modernize informal sector taxation by banning coercive practices and embracing technology, potentially expanding the tax base without increasing rates, if implementation matches the ambition of the reforms.

Sources: The Cable