Presumptive Tax under the Nigeria Tax Act 2025: A Simpler and Fairer Tax System for Small Businesses

Nigeria’s tax reform agenda reached a major milestone with the enactment of the Nigeria Tax Act (NTA) 2025, which introduced a statutory Presumptive Tax Regime to simplify tax compliance for businesses operating in the informal sector.

For many micro and small businesses, maintaining detailed accounting records and calculating taxable profits is often impractical. The presumptive tax regime addresses this challenge by allowing eligible taxpayers to pay tax using a simplified method based on turnover rather than actual profit. This approach reduces compliance costs, encourages voluntary tax compliance, and supports the formalisation of small businesses.¹

The Legal Framework

The legal basis for presumptive taxation is contained in Section 29 of the Nigeria Tax Act 2025, which authorises the use of a presumptive method where a taxpayer’s income cannot reasonably be determined due to inadequate accounting records. The Act also empowers the Minister of Finance, on the recommendation of the Joint Revenue Board, to issue regulations for its administration.²

Pursuant to this provision, the Presumptive Tax Regulations 2026 were signed on 4 March 2026, providing the operational framework for eligibility, assessment, collection, and administration of the regime.³

Key Features

The Regulations introduce several business-friendly measures:

• Businesses with an annual turnover of ₦12 million or less are generally exempt from presumptive tax.
• Eligible informal businesses with annual turnover above ₦12 million are generally subject to a 1% tax on annual turnover, replacing complex profit-based tax computations.
• Tax collection is channelled through a structured and accountable framework, replacing fragmented collection practices with designated payment channels. This is designed to eliminate informal cash collections, roadside tax enforcement, and multiple tax demands, while improving transparency and protecting business owners from harassment.

Why It Matters

Nigeria’s informal sector contributes significantly to the economy, yet many businesses remain outside the formal tax system because of complex compliance requirements and inconsistent tax administration.

The presumptive tax regime replaces discretionary Best-of-Judgment (BOJ) assessments with a simple, rules-based system that promotes certainty, fairness, and ease of compliance. It also strengthens the ease of doing business by making tax collection more transparent and predictable.

For SMEs, the benefits include:

• Simpler tax compliance.
• Lower compliance costs.
• Structured and transparent tax collection.
• Reduced multiple taxation and unofficial revenue enforcement.
• Improved access to finance, government interventions, and investment opportunities through greater formalisation.

Implications for Tax Professionals

The new regime shifts the role of tax practitioners and accountants beyond tax computation to advisory services. Professionals will play an important role in helping businesses determine eligibility, maintain basic financial records, monitor turnover, and prepare for transition into the regular tax system as they grow.

Conclusion

The presumptive tax regime introduced under the Nigeria Tax Act 2025 represents a significant shift in Nigeria’s approach to taxing the informal economy. By combining simplified tax assessment with a structured collection framework, the reform seeks to reduce compliance costs, improve voluntary compliance, minimise unofficial tax collection practices, and create a more transparent and business-friendly tax system. If effectively implemented, it has the potential to broaden the tax base while supporting the sustainable growth of Nigeria’s small businesses.

Footnotes

1. Nigeria Tax Act 2025, s. 29.
2. Federal Ministry of Finance, Presumptive Tax Regulations 2026, signed on 4 March 2026 pursuant to Section 29 of the Nigeria Tax Act 2025.