FG Rolls Out 1% Presumptive Tax for Small Businesses

The federal government has introduced a new 1% presumptive tax for small businesses operating in Nigeria’s informal sector, a move aimed at widening the tax net and improving revenue collection without putting small traders through complex tax processes.

The new framework is designed for micro and small businesses that usually do not keep detailed financial records. Instead of using the regular profit-based tax system, the government will apply a flat 1% tax based on annual turnover. 

This means eligible business owners will pay tax based on what they make in sales, not after a full accounting review of profits and expenses.

The policy is being implemented through the Federal Inland Revenue Service as part of a broader effort to bring more informal businesses into the formal economy. It also comes with a strong directive against cash tax collection.

Tax officials are no longer allowed to collect payments by hand, a step meant to reduce abuse, block leakages, and stop the kind of unofficial collections that have troubled small business owners for years.

This new tax system is expected to affect many operators in the informal economy, including traders, hairdressers, barbers, tailors, mechanics, food vendors, carpenters, artisans, and transport operators. These are businesses that form a large part of Nigeria’s economy but often remain outside the formal tax structure.

Government officials say the goal is not only to raise more revenue but also to make tax compliance easier. For years, many small businesses have stayed outside the tax system because the process was too stressful, too unclear, or too easy to abuse by local collectors. 

By introducing a simple flat rate, the government believes more people will be willing to comply.

The policy also speaks to a bigger issue in Nigeria’s tax system. A large number of small businesses already pay different forms of levies, fees, and charges to local agents and authorities, yet many of these payments are not properly documented. 

In some cases, business owners are forced to pay more than once for the same activity. By pushing a clearer tax structure and banning cash collection, the government is trying to reduce confusion and improve accountability.

For many business owners, the success of this reform will depend on how it is enforced. A simple tax policy can be helpful, but only if it truly reduces pressure on small enterprises rather than adding another burden. 

If properly managed, it could help reduce harassment, improve trust, and make it easier for informal businesses to deal with tax matters in a more transparent way.

There is also a long-term economic goal behind the policy. Once small businesses are captured in a formal system, they may find it easier to access government support, loans, grants, and other opportunities that often require proof of business activity. Formalisation can also help small operators grow, build proper records, and participate in larger markets.

Still, some small business owners may worry about what this means for already thin margins. Many informal operators are dealing with high transport costs, weak consumer spending, rising rent, and unstable operating conditions. 

Any new tax, even a simple one, may be seen as another pressure point unless the government clearly shows that it will replace unofficial levies and not sit on top of them.

That is why communication will matter. 

The government must explain who qualifies, how payment will be made, what protections exist, and how traders can report abuse. Without that clarity, even a well-designed reform could face resistance.

In simple terms, the 1% presumptive tax is the government’s latest attempt to bring more small businesses into the tax system without forcing them into a complicated process. 

It is a revenue move, but it is also a test of whether Nigeria can create a tax system that is easier, cleaner, and fairer for the people at the bottom of the business ladder.

If the rollout is transparent and consistent, it could mark an important shift in how Nigeria taxes its vast informal economy. If not, it risks becoming just another policy that sounds good on paper but leaves small business owners carrying the weight.