New Tax Law Exempts 97% of Nigeria’s Informal Sector, Boosting Small Businesses.
In a landmark move to support small businesses and low-income earners, Nigeria’s new tax law, set to take effect on 1 January 2026, will exempt 97% of informal sector operators from taxation. Announced by Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, at PwC’s Executive Summit in Lagos on 21 July 2025, this progressive reform aims to ease the financial burden on small-scale traders and entrepreneurs while fostering economic growth.
Speaking at the summit, themed “The New Tax Era: What Nigeria’s Tax Reform Means to Individuals and Businesses,” Oyedele revealed that only the top 3% of informal sector operators—those with the financial capacity to pay—will be subject to taxes. “From our analysis, it is only the top three per cent of the informal sector that has the ability to pay. Therefore, we have legally exempted the bottom 97 per cent from paying taxes. Let them breathe,” he said, emphasising the need to allow small businesses to grow before imposing tax obligations.
The reform package introduces significant relief measures, including an exemption from personal income tax for employees earning less than N800,000 annually. Additionally, the corporate tax exemption threshold has been raised from N25 million to N50 million in annual turnover, sparing many small businesses from company income tax and VAT. This shift is expected to encourage informal operators, such as market traders and artisans, to formalise their businesses without fear of excessive taxation.
To streamline tax administration, the Federal Inland Revenue Service (FIRS) will become the sole collector of federal taxes, reducing the complexity of multiple tax regimes. Oyedele also warned that tax evasion would face stricter enforcement, with penalties for those misrepresenting their earnings to avoid obligations. “If you lie and say your business is small when it is not, we will find out, and there shall be consequences,” he stated.
The gazetted version of the law is currently being finalised in Lagos and will soon be released to the public, providing clear guidelines for implementation. Sam Abu, Regional Senior Partner at PwC’s West Market Area, underscored the importance of collaboration, urging stakeholders to engage with the reforms “with sincerity, integrity, and optimism” to ensure their success.
This reform, part of a broader effort to harmonise Nigeria’s tax system, is seen as a game-changer for the informal sector, which constitutes a significant portion of the nation’s economy. By reducing the tax burden on small businesses and low-income earners, the government aims to create a more equitable and growth-friendly environment, paving the way for sustainable economic development.