One of the greatest challenges facing tax authorities around the world is taxing the informal economy.
Many small businesses operate largely in cash, maintain limited accounting records or do not keep formal books at all. While these businesses contribute significantly to economic activity, they often fall outside the traditional income tax system because their taxable income cannot easily be determined.
Nigeria has now taken another step towards addressing this challenge.
The recently gazetted Nigeria Presumptive Tax Regulations, 2026, which took effect on 1 January 2026, introduce a presumptive tax regime for individuals whose taxable income cannot be accurately determined because of inadequate record keeping or the deliberate withholding of information.
Although presumptive taxation is not a new concept, Nigeria’s latest regulations demonstrate how African tax authorities are increasingly seeking practical ways to expand the tax base while encouraging greater formalisation of the informal economy.
What Is Presumptive Tax?
Under a normal income tax system, tax is calculated on actual taxable profits.
That requires taxpayers to maintain adequate accounting records, calculate deductible expenses and determine taxable income in accordance with the relevant legislation.
Where reliable records do not exist, however, that exercise becomes considerably more difficult.
Presumptive tax offers an alternative.
Instead of attempting to calculate actual profits, the tax authority applies a simplified method based on another indicator of economic activity, such as turnover, business type or estimated income.
The objective is not necessarily to produce a perfectly accurate tax result, but rather to provide a practical mechanism for taxing businesses that might otherwise remain outside the formal tax system.
Nigeria’s New 1% Turnover Tax
The Regulations introduce a 1% presumptive income tax on the actual or estimated annual turnover of individuals whose income cannot be accurately determined because they do not maintain sufficient records.
Importantly, the regime applies only where taxpayers fall outside the normal self-assessment system due to inadequate documentation or deliberate concealment of information.
Where adequate accounting records exist, taxpayers will continue to be taxed under Nigeria’s ordinary income tax rules.
In other words, the presumptive regime is intended to fill gaps in the tax system, not replace conventional taxation.
Relief for Smaller Businesses
Recognising the need to avoid placing excessive burdens on the smallest businesses, the Regulations exclude certain qualifying nano businesses.
Businesses operating in sectors such as:
- artisan trades;
- manual services;
- petty retail;
- transport and logistics;
- informal production and processing; and
- certain quasi-manufacturing activities,
may qualify for exemption where their annual turnover does not exceed NGN12 million (approximately USD8,750).
Although exempt from the presumptive tax itself, these businesses may still be registered by the relevant tax authority and issued with taxpayer identification numbers.
This reflects a broader policy objective of gradually bringing more participants in the informal economy into the formal tax system.
A New Presumptive Tax on Capital Gains
One of the more interesting aspects of the Regulations is the introduction of a 2% presumptive tax on chargeable gains realised by individuals on the disposal of certain assets.
Rather than taxing the actual gain, the Regulations apply the tax to the gross proceeds received from the disposal.
The regime potentially applies to disposals of:
- land;
- buildings;
- movable property;
- shares; and
- intangible assets,
unless a specific exemption applies under the Nigeria Tax Act.
The tax must generally be remitted within 30 days of the earlier of the completion of the transaction or receipt of the consideration.
This simplified approach may improve administrative efficiency, although it also raises practical questions where assets are sold at little or no economic gain.
How Will Turnover Be Determined?
One of the practical challenges with presumptive taxation is determining turnover where reliable records are unavailable.
The Regulations permit the relevant tax authority to estimate turnover using a best-of-judgement approach.
Factors that may be considered include:
- the nature of the business;
- its location;
- the taxpayer’s assets and lifestyle;
- community intelligence; and
- electronic and cash transaction volumes.
This represents a broad discretionary power intended to prevent taxpayers from benefiting from poor record keeping.
At the same time, the Regulations preserve taxpayers’ rights to object to assessments and pursue administrative review through the Office of the Tax Ombud or the Tax Appeal Tribunal where appropriate.
An Incentive to Keep Better Records
Interestingly, the Regulations are designed to encourage businesses to transition into the ordinary tax system over time.
Taxpayers who begin maintaining adequate records may elect to leave the presumptive regime and file normal self-assessment returns.
Conversely, where the tax authority determines that proper records are now being maintained, it may require the taxpayer to move into the standard income tax framework.
The presumptive regime therefore appears intended as a practical compliance tool rather than a permanent alternative tax system.
Pourquoi c'est important
Nigeria’s new Regulations reflect a broader trend emerging across Africa.
Tax authorities are increasingly seeking ways to improve revenue collection from sectors of the economy that have historically been difficult to tax.
Rather than relying solely on enforcement, many governments are introducing simplified tax regimes designed to encourage voluntary compliance while expanding the tax base.
For governments, presumptive taxation offers several potential advantages:
- reducing administrative complexity;
- broadening the taxpayer base;
- encouraging formalisation;
- improving taxpayer registration; and
- generating revenue from previously under-taxed sectors.
The Commercial Implications
Although the Regulations primarily affect individuals operating informal businesses, they also carry broader implications.
Businesses interacting with informal suppliers may increasingly find those suppliers entering the formal tax system.
Financial institutions and digital payment providers may also experience greater scrutiny as transaction data becomes increasingly important in estimating turnover.
More broadly, the Regulations reinforce the growing importance of maintaining accurate accounting records.
Businesses that keep proper books are more likely to remain within the ordinary tax system, where taxable income is determined by actual commercial performance rather than estimates.
Une tendance africaine plus large
Nigeria is not alone in exploring simplified taxation models.
Across Africa, governments continue to seek ways to tax growing informal economies while improving domestic revenue mobilisation.
Increasing digital payment systems, enhanced taxpayer registration and greater use of data analytics are making it easier for tax authorities to identify businesses that have historically operated outside the formal tax net.
Presumptive tax regimes are becoming one of several tools used to bridge that gap.
Conclusion
Nigeria’s new Presumptive Tax Regulations represent another step in the country’s broader efforts to expand the tax base and strengthen compliance within the informal economy.
By introducing a simplified 1% turnover tax for certain individuals with inadequate records, together with a presumptive tax on certain capital disposals, the Regulations seek to balance administrative practicality with broader revenue collection objectives.
For businesses and advisers, the message is clear: maintaining accurate accounting records remains the best route into the ordinary tax system. As tax authorities across Africa continue to modernise and improve access to taxpayer data, simplified tax regimes such as Nigeria’s are likely to become an increasingly common feature of the continent’s evolving tax landscape.
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