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Experts fault FG’s planned taxes on informal businesses

  • Post category:Politics

Economic experts have expressed their criticism of the federal government’s plan to tax the informal sector, citing concerns that it could exacerbate the challenges faced by small business owners and contribute to increased poverty and hardship in Nigeria.
The Federal Inland Revenue Service (FIRS) recently announced the VAT Direct Initiative, which aims to collect Value Added Taxes from the informal sector and reduce multiple taxation in the informal economy. However, experts interviewed by BusinessDay have raised objections to the plan, arguing that it will place an additional burden on small business owners who already face various levies imposed by local governments and non-state actors.
Professor Uche Uwaleke from Nasarawa State University acknowledged the potential benefits of the initiative in generating more revenue for the government but criticized the timing, particularly considering the rising costs of energy. Uwaleke warned that implementing the initiative at this time may lead to higher inflation as traders and service providers pass on the VAT charges to consumers, further burdening them.
Experts also raised practical concerns, noting that many businesses in the informal sector lack proper accounting records. They advised the FIRS to postpone the implementation until economic conditions, such as affordable electricity and fuel, improve. It was emphasized that the informal sector constitutes more than 50 percent of Nigeria’s GDP.
The analysis of the 2020 MSMEs survey revealed that out of the 39.6 million MSMEs in Nigeria, 34.4 million operate informally. A trader interviewed at the Lugbe-Berger market expressed dissatisfaction with the proposed tax, citing the already challenging business environment and other financial obligations.
Ibrahim Musa Rafsanjanni, the executive director of Civil Society Legislative Advocacy Centre, argued that imposing additional taxes on small businesses without considering their struggles and hardships would only deepen their difficulties. He called for a more favorable environment for businesses, particularly at the grassroots level, to reduce poverty.
Muda Yusuf, the director of the Centre for the Promotion of Private Enterprise, highlighted the economic feasibility of tax collection in the informal sector. He argued that the cost of collection may outweigh the amount collected, especially considering that the majority of informal sector traders are microenterprises that fall below the VAT payment threshold. Yusuf also raised concerns about the fragmented nature of informal sector associations and the lack of records for assessment, as well as the low literacy levels among operators.
Yusuf suggested that the FIRS should explore more creative and cost-effective ways of taxing the informal sector, focusing on players who can yield higher revenue. He emphasized the need to avoid burdening informal sector operators with additional taxes, considering that they already pay various levies to local governments and non-state actors.

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