Given the operations of the informal sector, information gathering would be a herculean task. This may be visible, irregular, non-structured, backyard, underground, subterranean, unabsorbed or residual. The informal economy is described as the sum total of economic activity that happens outside state regulation, which is neither taxed nor represented in a country's GDP. The recent International Monetary Fund (IMF) country report shows that only about 10million people, out of a labor force of about 77million people, are registered for taxes in Nigeria. The authorities have initiated different schemes including several tax amnesty programs to encourage non-complaint taxpayers to come forward and declare their taxes, which will make them included in the tax net. To this end, the informal sector can be explained as the sum total of income generating activities outside of a government regulated contractual relationship of production.1, The informal sector may be subdivided into Productive, Service and Financial sectors. Upon recognizing the huge revenue stream in the informal sector, the LIRS had earlier in the year classified the tax payers in the informal sector to be: market men/women and artisans; micro, small and medium scale enterprises (including professionals); and household domestic staff. Citizens’ views on informal taxation in Nigeria23 ActionAid’s local partner in Ondo, Nigeria, the Justice Development and Peace Centre (JDPC) says that problems with taxation of informal market traders include a lack of tax statistics and transparency, a poor tax administration and a … Nigerian Informal Sector and Tax Challenges . Commodity prices have remained volatile globally, diversification into other better paying natural resources require massive investment income which government does not have readily. In partnership with the United Nations Industrial Development Organization, it birthed the Sub–contracting and Partnership Exchange (SPX) to link domestic enterprises in developing countries to the supply chains of large domestic or international companies 5 with the grant of credit and investment facilities in 1999. This edition marks the beginning of Volume 2 of our quarterly newsletter. Taxing the informal sector is also critical because it will ensure that there is a perception of fairness in the tax system. The size of the informal sector in Nigeria is estimated at about 65% and consists of activities that range from agricultural production to mining and quarrying, small … 3. The enlightenment must also seek to demystify the process leading up to taxation which is needlessly shrouded in complex financial jargons. The economic activities in the Informal financial sub-sector include the Ajo/Esusu, informal money lenders among others. The informal sector They typically operate at a low level of organization, with little or no division between labor and capital as factors of production. The above remain germane points in the ongoing debate on government’s morality in taxing or levying businesses in the informal sector or the implementation of tax holidays for such businesses. Your email address will not be published. Government support are of three categories, some of them are interwoven in concept and operation. A significant catchment of potential taxable persons that must be brought within the tax net therefore are those operating in the informal sector of the Nigerian economy. It also places significant burden on the existing taxpayers who in some instances, already have a high level of compliance, as the tax authorities continues to focus on these known taxpayers for audits and tax drives. In response to these challenges, government must develop smart solutions unique to this sector and the Lagos State Internal Revenue Service (“LIRS”) 9 offers a good reference point because of its approach. Tax Identification Number (TIN) In Nigeria, every citizen of Nigeria working with the Government, the private sector or owns a business in operation or with an intent to start up one is expected to obtain a Tax … The assessment is based on three major indicators; total tax rate, number of payments and compliance time. Given the significant size of the informal sector in the economy, it is safe to say that the tax to GDP ratio will not significantly improve until this huge and untapped section of the economy is effectively subjected to tax. The NTP, an initiative of the Federal Government driven by the Federal Ministry of Finance sought to set the direction for Nigeria’s tax system as well as provide the basis for tax legislation and administration in Nigeria. The informal sector will remain a major feature of economic activity in Nigeria. However, a recent study by Chatham House Royal Institute of International Affairs indicated that the Nigerian informal sector constitutes as much as 64% of Gross Domestic Product (GDP). ~Afam Nwokedi Please read these terms and conditions before using the website. These businesses do not benefit directly from government support program but survive and grow solely due to the persistence and ingenuity of their owners. In particular, the NTP notes that PITAS would help the tax authorities deal effectively with the taxable persons who have historically failed to comply with the tax laws due to their size or lack of business address. The establishment of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) to primarily assist, promote the growth and development of micro, small and medium scale enterprises. In essence, the above provision mandates that the income of a taxpayer from the informal sector shall be taxed in accordance with the prescriptive tax regime. Terms & Conditions | Abuja — The Executive Chairman of the Federal Inland Revenue Service (FIRS), Mr. Muhammad Nami, yesterday said Nigeria and the rest of Africa must exploit the potential in the informal sector of the economy to reduce budget deficits and increase tax revenue collection. Agencies have also been established to administer government assistance. It is however not the focus of this paper. Some of the issues plaguing the proper taxation of these businesses include: c. How should they be assessed for taxation? The mass of economic activities can be categorized into formal and informal sectors. There has been a lot of focus on the fact that Nigeria’s tax to GDP ratio of about 6.1% is quite low and appears to remain unchanged despite all the efforts of the tax authorities to improve collection. Regardless of the form of taxation i.e direct or indirect, a good tax system is founded on equality, certainty, convenience and economy; these are still largely relevant in today’s economy. An example of such support is the N1.6 billion special intervention fund – National Women Empowerment Fund aimed at supporting grassroots women operating informal businesses by providing start up and scale-up credit for them. The Informal sector, which is the focus of this paper is also known as the “grey economy”. a. Amaka skillfully links economy with knowledge and ties both around intellectual property. Despite these efforts, the general level of tax compliance in Nigeria is still quite low. Ani Ubon critically examines the much controversies and deception surrounding the appellation ‘Alternate Director’ and presented us with a heavy recommendation – that the appellation be expressly expunged from the Company & Allied Matters Act. IS seems difficult to tax because of administrative problems, human capital and personnel shortage, lack of record keeping, nature of its economic activities and cost implications. Arosanyin and G. T Ijaiya: Government Assistance for Informal Sector Enterprises in Nigeria. Nigeria has generated a total of N7.8 trillion from company income tax (CIT) from January 2015 till end of last quarter (Q3 2020), an analysis of relevant data has shown. This impacts their tax morale and can result in low tax compliance among those in the formal sector. It would appear that this assessment can be determined based on best judgement. Taxation of the informal sector2 The formalisation of informal sector activities has received some particular attention in the international development agenda, and taxation is often regarded as a key ingredient (Joshi et al., 2014). Accountability and good governance have been identified as the key to achieving effective informal sector taxation. ©Andersen Tax LLC and Andersen Tax LP. Activities in the Informal Service sub-sector include traditional birth attendants, menial labour, traditional healers etc. A standard assessment i.e apportioning an aggregate sum to tax payers doing the same kind of business. Beneria and Floro (2006); UNRISD (2010) argued that, informal sector typically earn less income, have unstable income, and do not have access to basic protections and services and for such reasons believe that, informal sector lacks the potential for growth. This is all in a bid to stimulate economic growth and create an enabling environment for more investment. The operators in that sector are usually more focused on improving and growing their businesses rather than keeping proper records. The NTP encourages through innovative policy directions i.e a shift from direct taxation to indirect taxation, reduced direct tax rates (Personal Income Taxes and Companies Income Taxes alike) & increased indirect tax rates. Umoh, The Informal Sector,, G.T. Challenges for tax collection in the Informal Sector While voluntary compliance is a benefit of this tax regime, the “imprecise” nature of the tax assessment could pose hardship to the business owner. Has begun the process leading up to taxation which is the fact that have. Other better paying natural resources require massive investment income which would otherwise revenue. More investment the action of them are interwoven in concept and operation of note judgement... Its part has over the years attempted to implement programs which are designed to support the operation of paper. 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