1% Turnover Tax Sparks Fears For Small Businesses
Policy Shift Targets Informal Economy
NIGERIA’S new tax framework introducing a 1 percent turnover levy on small businesses is generating concern among analysts and operators in the informal sector.
Unlike traditional taxation based on profit, the turnover tax applies directly to revenue, meaning businesses may be required to pay taxes even when they are not making profits. This marks a significant shift in how micro and small enterprises are taxed across the country.
How the New Tax Works
Under the policy framework approved by the Minister of Finance, Wale Edun, businesses with annual earnings of ₦12 million or less are exempt from the levy.
However, enterprises operating above this threshold within the informal sector will be required to pay 1 percent of their total turnover. The government says the approach is aimed at improving compliance and expanding the tax base.
Concerns Over Profitability and Survival
Despite its intentions, experts warn that the policy could place additional strain on small businesses already grappling with rising costs and economic uncertainty.
Because the tax is calculated on revenue rather than profit, businesses operating on thin margins may struggle to meet obligations, particularly during periods of low sales or high operating expenses.
For many informal operators—who often lack financial buffers—the policy could mean paying taxes even when running at a loss.
Balancing Compliance and Growth
Analysts acknowledge that broadening the tax net is necessary for government revenue, but caution that implementation must be carefully managed to avoid unintended consequences.
They argue that without safeguards, the new tax could discourage business growth, reduce reinvestment, and potentially push some enterprises further into informality.
As the policy takes shape, stakeholders are calling for clearer guidelines and supportive measures to ensure that compliance does not come at the expense of survival.
