• Monday, December 11, 2023
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FG mulls new tax strategy to capture Nigeria’s informal sector


The Federal Government is working out a new tax strategy aimed at capturing Nigeria’s huge informal sector into the tax stream and making operators there willingly comply with tax obligations.

The new approach, called the ‘Presumptive Tax Strategy’ is being developed by the Federal Inland Revenue Service (FIRS) and would be predicated on a taxpayer’s presumed, rather than actual income.

Announcing this in Abuja, Kabir Mashi, Acting Chairman, FIRS, said the modalities of the proposed policy, including the minimum amount that each operator could be taxed under the new regime were still being discussed, but would be transparent and affordable.

Mashi said the policy is in line with Section 6 of the 2011 Nigerian Personal Income Tax, which provides that “Notwithstanding any of the provisions of the Act, where for all practical purposes the income of the taxpayer cannot be ascertained, or records are not kept, in such a manner as would enable proper assessment of income, then such a taxpayer shall be assessed on such terms and conditions as would be prescribed by the Minister of Finance, in regulations by order of gazette under the presumptive tax regime.”

Discussions commenced yesterday on the new tax approach with a sensitisation workshop organised by the FIRS for the stakeholders. But the regulations that would guide the new tax regime have already been developed by the Co-ordinating Minister for the Economy and Minister of Finance, Ngozi Okonjo-Iweala.

As contained in the regulations seen by BusinessDAY, a person qualifies to be taxed under this regime while operating in the informal sector and not keeping records, with an estimated annual turnover in the preceding year of N6 million and below. The person can however, voluntarily elect to exit and file the tax returns and be assessed under the regular tax system in any year.

But any tax payer whose turnover exceeds the threshold on N6 million in a year, is to exit the tax regime in the subsequent assessment year, and may no longer file his or her returns under the presumptive tax regime.

Categories of taxpayers to be administered under the regime include; retailers of products such as food, clothing, fashion items, boutique items, perfumes, precious metals, jewellery, patent medicine stores and vulcanisers. The next category includes; small scale businesses that manufacture products which include aluminium, textiles, processed foods, machinery, wooden products and furniture.

Others are service providers operating businesses that include esusu/adashe/ajo, and photographers, beauty, fashion, tailor shops, transport activities etc. The last category includes tradesmen such as painters, plumbers, electricians, bakeries and teashops, amongst others.

For a long time, revenue authorities have been grappling with the high level of tax evasion in the country, which is very prevalent in the informal sector.

And like most developing nations, taxation of the Nigerian informal sector and particularly persons and businesses that are not properly structured, or are unable to keep proper and detailed records of their business transactions, has been challenging for the nation’s tax authorities.

At the workshop, Mashi told participants that the presumptive tax regime became necessary since there is a large pool of taxpayers as well as potential taxpayers in Nigeria’s informal sector, who can contribute a significant amount to tax collection if they are properly assisted to comply with tax laws.