New Tax Laws Threaten Nigeria’s Informal Sector

Nigeria’s informal economy, the backbone of the nation’s workforce and employer of more than 80 per cent of its labour force, faces what traders call an existential threat from the federal government’s new tax laws, which are due to take effect in three months. Market unions and small-business operators warn the 2025 Finance Act could trigger mass closures if implemented without urgent improvements in infrastructure, security, and access to low-interest credit. Economists meanwhile caution that mismanaging the rollout could undermine trust, cripple livelihoods, and spark widespread noncompliance.
The Finance Act seeks to expand Nigeria’s tax net by drawing micro and small enterprises into the formal system. Officials argue this reform is necessary to increase non-oil revenue, reduce dependence on borrowing, and achieve fairness across the fiscal landscape. But informal workers already pressed by inflation, poor infrastructure, and multiple levies say the new measures risk suffocating the very sector that sustains Nigeria’s economy.
“The informal sector accounts for nearly 70 percent of Nigeria’s economy, yet contributes very little to government revenue,” said University of Ibadan economist Professor Tayo Bello. “This reform is not about punishment, but about creating a fairer and more sustainable tax structure,” added Auchi Polytechnic economist Zakari Mohammed.
Still, controversy is building around the details. The law exempts individuals with annual taxable profits of N800,000 (N67,000 per month) or less after relief allowances. But since Nigeria’s national minimum wage is N70,000 per month, minimum wage earners will now fall under the taxable bracket, raising fears that the poorest workers are being drawn into the net.
At Lagos’s Balogun Market, traders said the levy could devastate small operators. “Business is tough as it is. If government adds more taxes without improving electricity or reducing the cost of goods, many of us will just close shop,” said fabric trader Grace Ojo. Kano-based phone repairer Yusuf Ibrahim was more blunt, “We don’t have steady power, we buy fuel daily, and now they want us to pay taxes. It feels like government is only interested in taking, not supporting.”
A leader of the Alaba International Market traders’ association, speaking anonymously, warned that the law must be implemented with sensitivity. “Taxing people who are already struggling in a harsh economy without visible support will backfire. Government must first show goodwill by improving market infrastructure, security, and access to low-interest credit,” he said.
Some small entrepreneurs are cautiously optimistic. Aba-based fashion designer Chiamaka Nwosu, said she would pay if there were visible benefits. “If paying taxes means my tailoring business can get access to government-backed loans or training, I don’t mind. But we need to trust that the money won’t just disappear,” she said.
Economists insist that credibility and fairness will determine whether the reform succeeds. Nnamdi Azikiwe University’s Dr. Felix Echekoba advised a phased rollout, “One option is to start with tax holidays for new entrants to encourage registration and formalisation before full taxation begins.”
Development economist Dr. Paul Olaleye, called for a tiered approach. “A flat presumptive tax risks being unfair. A tiered structure where the smallest operators pay symbolic amounts while larger SMEs shoulder more can balance equity with efficiency. Government must also guarantee reinvestment quotas, channeling a percentage of the revenue directly back into small-business support,” he said.
CashLinks economist David Awosike, emphasised that trust is critical. “The informal sector is huge because people do not trust the system. A practical measure is earmarking collected taxes for visible projects such as market electrification or health insurance schemes for traders. Without that, compliance will collapse,” he argued.
Other experts say the government must frame taxation as a pathway to social protection. “Tax should be framed not as a burden but as a ticket into social protection,” said development economist Dr. Paul Jakpor. “If government guarantees benefits, people will be more willing to pay.”
The Federal Inland Revenue Service (FIRS) has pledged that part of the revenue will be reinvested into small-business support, including credit access, vocational training, and formalisation programmes. It also promised to partner with trade associations on awareness campaigns to ensure smooth rollout.
But for many artisans, the key issue remains fairness. “We are not against tax, but government must listen to us,” said Mohammed Musa, a mechanic in Abuja. “Don’t treat small mechanics like big oil companies. We just want a system that understands our reality.”
With Nigeria’s informal sector representing nearly 93 per cent of employment in 2023, experts warn that implementation will be fraught with challenges. For now, millions of traders and artisans are waiting to see whether the tax reforms will open doors to credit, infrastructure, and social protection or whether they will push the country’s fragile informal economy into crisis.