Nigeria has begun implementing one of its most far-reaching fiscal reforms in decades following the introduction of a four-law tax reform package designed to modernise tax administration, widen the tax base and improve government revenue.
Signed into law on 26 June 2025 and effective from 1 January 2026, the reforms are anchored by the Nigeria Tax Act 2025 and the Nigeria Revenue Service (Establishment) Act, which transformed the former Federal Inland Revenue Service (FIRS) into the Nigeria Revenue Service (NRS). The new agency now has a broader mandate, including responsibility for collecting certain revenues, such as oil and gas royalties, previously administered under separate arrangements.
A central objective of the reforms is to bring more businesses in Nigeria’s large informal economy into the formal tax system while simplifying compliance for small enterprises.
According to the latest joint survey by the National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Nigeria is home to about 39.6 million micro, small and medium-sized enterprises (MSMEs). The informal economy is estimated to account for more than 40% of the country’s gross domestic product and provides employment for a substantial majority of Nigeria’s workforce, underscoring its importance to economic activity.
To support formalisation, the government introduced the Presumptive Tax Regulations 2026 under the Nigeria Tax Act. The framework requires eligible informal businesses to pay a presumptive tax of 1% of their actual or estimated annual turnover, while nano businesses with annual turnover below ₦12 million are exempt from the levy.
The regulations also prohibit cash tax collections and roadside tax enforcement, requiring payments to be made only through approved electronic channels, including bank transfers, digital payment platforms and USSD. In addition, businesses are required to obtain a unified Taxpayer Identification Number (TIN), enabling tax records to be harmonised across relevant government agencies and improving compliance monitoring.
The reforms form part of a broader strategy to increase Nigeria’s tax-to-GDP ratio, which government data show has risen from 10.3% to about 13%, although it remains below the African average of roughly 16%.
According to the Presidency’s Economic Snapshot Report 2023–2026, the Nigeria Revenue Service generated ₦21.6 trillion in gross revenue during the first half of 2026, representing a 49% increase compared with the same period a year earlier. The government attributes the growth to expanded tax administration, digitalisation of collection systems and stronger oversight of oil and gas revenue.
Beyond increasing revenue, policymakers argue that formalising businesses could improve their access to finance, government support programmes and public procurement opportunities. Economists, however, caution that the reforms’ long-term success will depend on maintaining a simple and affordable compliance regime, strengthening taxpayer education and addressing practical barriers such as limited digital literacy, poor internet connectivity and inadequate record-keeping among many small businesses.
The presumptive tax framework is intended to serve as a transition into the formal tax system, allowing businesses that adopt proper financial records to migrate to the standard self-assessment regime over time.
As implementation gathers pace, analysts say the success of Nigeria’s tax reforms will be judged not only by higher revenue collections but also by their ability to expand formal economic participation without placing an excessive burden on the millions of small businesses that remain the backbone of the country’s economy.
