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VOL. 11, ISSUE 9 (2025)
Taxing the informal sector in Nigeria: Prospects and challenges
Authors
Chioma O Nwabachili, Charity A Ekeleme
Abstract
In Nigeria, the informal sector accounts for a significant economic
activity, yet it remains largely untaxed and unregulated. The informal sector
is a segment of the economy, comprising of unregulated, unregistered and
unmonitored economic activities that operates outside the formal sector. This
sector will include among others, small-scale traders, artisans, transport
workers and other non-registered businesses. This sector contributes
meaningfully, but absence of proper record-keeping, and cash-based transactions
has made it difficult for tax authorities to effectively capture or regulate
this sector. The problems associated
with the informal sector go beyond revenue loss. Its continued exclusion from
the tax net undermines the principle of fairness in taxation and places a heavier
burden on the already taxed formal sector. There is, therefore, a growing need
to find workable legal solutions that can integrate informal economic actors
into the formal tax system without jeopardizing their survival. This research
aims to examine the taxation of the informal sector in Nigeria, while analyzing
the challenges which have hindered effective tax administration of this sector
of the economy and explore practical prospects for reform. The research adopted
a doctrinal method, while sources of data included both primary and secondary.
These were reviewed to provide clearer pictures of the existing legal scope and
their limitations. Findings reveal that complex taxation procedures, inflexible
compliance mechanisms as well as legal issues are some of the bane to the
successful taxation of the informal sector in Nigeria. It is therefore
recommended that simplifying tax procedures, introduction of flexible
compliance mechanisms and tailoring legal reforms to reflect the realities of
informal sectors would help in actualizing the goal of the taxation of the
informal sector in Nigeria.
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Pages:105-104
How to cite this article:
Chioma O Nwabachili, Charity A Ekeleme "Taxing the informal sector in Nigeria: Prospects and challenges". International Journal of Law, Vol 11, Issue 9, 2025, Pages 105-104
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