FIRS Eyes Data-Driven Formalization for Informal Sector
By Patience Ikpeme
The Chairman of the Federal Inland Revenue Service (FIRS), Zacch Adedeji, has stated that the well-being of Nigeria’s informal sector operators is a significant concern for President Bola Tinubu.
Adedeji noted that workers in this sector constituted 92.2% of the employed population as of the first quarter of 2023, according to the National Bureau of Statistics (NBS) data which attributed a drop in the national unemployment index to the recognition of informal work.
Speaking on Monday in Ibadan, the Oyo State capital, at the 157th Board meeting of the Joint Tax Board (JTB) on the theme “Taxation of the Informal Sector: Potentials and Challenges,” Adedeji articulated his preference for supporting the formalization of the informal sector using robust data, rather than simply imposing taxes on them.
“President Bola Tinubu has said the focus should be on taxing the fruits and not the seeds so that we don’t kill what people have invested in businesses,” Adedeji explained, according to a statement from his Technical Assistant on Media, Sikiru Akinola.
Adedeji, who also chairs the Joint Tax Board, urged participants at the meeting, including the chairpersons of the 36 states’ inland revenue boards, to collaborate on strategies to bring formality to the informal sector through the use of reliable data.
He also announced that the JTB would soon transition to the Joint Revenue Board (JRB), with an expanded scope and responsibilities aimed at achieving a more harmonized and modernized tax system nationwide.
The FIRS chairman commended Oyo State Governor, Seyi Makinde, for hosting the meeting.
Speaking after Adedeji, Governor Makinde called for support in the ongoing efforts to broaden Nigeria’s tax net. He stressed the need for a strategic and humane approach. “The goal should not only be to increase revenue but to support and empower those within the informal economy so they can thrive and contribute meaningfully,” Makinde said.
The Governor added, “Our administration is committed to balancing fiscal responsibility with inclusive economic growth. Our recent initiatives have improved our revenue generation drive.”
Background on Informal Sector and Tax Reforms
Nigeria’s informal sector is a substantial part of its economy, providing livelihoods for a vast majority of the population. The National Bureau of Statistics (NBS) has previously shown the informal sector’s significant contribution to employment, with figures consistently above 90% of the employed population. The large size and unstructured nature of this sector have historically presented challenges for tax collection and formal economic planning.
President Tinubu’s administration has signaled a focus on economic reforms that aim to expand the tax base without stifling nascent businesses or burdening the poor. The “taxing the fruits, not the seeds” philosophy articulated by Adedeji aligns with the government’s broader economic agenda, which seeks to encourage investment and production before revenue extraction. This approach suggests a shift from broad-based taxation that could hinder small businesses to a more targeted collection once businesses are thriving and formalized.
The proposed transition of the Joint Tax Board (JTB) to the Joint Revenue Board (JRB) is part of a larger ongoing tax reform effort aimed at simplifying tax administration and increasing efficiency. The JTB currently plays a role in harmonizing tax policies and practices across states, particularly concerning personal income tax. The move to a JRB is likely intended to further streamline revenue collection processes across federal, state, and local government levels, reducing complexities and improving overall compliance.
Oyo State, under Governor Seyi Makinde, has also been active in its efforts to enhance internally generated revenue (IGR) and widen its tax base. Makinde’s administration has previously engaged with traders and artisans to sensitize them on new tax laws, including presumptive tax regimes for small informal businesses, aiming for a more inclusive tax system that also offers incentives like grants and loans. These local efforts mirror the federal government’s desire to formalize the informal sector and integrate it more effectively into the national tax framework, supporting both economic growth and increased government revenue.
