TAXATION OF THE INFORMAL SECTOR IN NIGERIA: PROSPECTS AND CHALLENGES

ABSTRACT

This long essay seeks to access the taxation of the informal sector in Nigeria alongside the prospects and challenges experienced. In Nigeria, economic activities comprise of both the formal and informal sector. The informal sector is the economic activities of the country which is without government regulation or totally limited government regulation. It is basically an unstructured system of economic activities. The lack of regulation and the unstructured system remains why it is difficult to properly tax this sector. In view of this, this study aims at examine some of the problems and challenges of taxing the informal sector such as the lack of proper and adequate recordkeeping, difficulty of identifying the appropriate tax base, limited knowledge about the tax system, lack of trust in government and tax officials, problems of disguised fees as taxes, unstable nature of the business carried out by operators in the informal sector. The above-stated challenges will be thoroughly examined in other to proffer workable and practical solutions to the taxation of the informal sector in Nigeria. Solutions and recommendations such as the utilization of local governments as collecting agents and trade formalization, minimum requirement for record-keeping purposes, reduced proliferation and consolidation of fees disguised as taxes and the proper tax administration will be highlighted for the effective taxation of this sector. With this in mind, this study will take a look at the above-stated challenges and suggest solutions and possible reforms to be adopted by Nigeria.