EXAMINATION OF THE CHALLENGES OF COLLECTING TAX FROM THE INFORMAL SECTOR IN NIGERIA
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Date
2021
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A PUBLICATION OF THE FACULTY OF LAW, USMANU DANFODIYO UNIVERSITY, SOKOTO
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Abstract
The informal sector refers to economic activities and income that are partially or fully outside of government regulation, taxation and observation. Informal economic activities in Nigeria consist of a wide range of small scale, self-employed activities. This paper examines the challenges the informal sector pose for tax administration. It reveals that informality constitute a complex phenomenon for policy makers, including tax administrators. This is because activities in the informal sector are difficult to measure even though they contribute substantially to personal or household income in Nigeria. The paper therefore suggest that the knowledge gap about the character and appropriate role of the informal sector should be filled because of the proportion it occupies in the Nigeria work force, which is claimed to be approximately 70 percent. The Federal Inland Revenue Service (FIRS) recently revealed that out of about 70 million taxable adults, only about 14 million are paying tax, and 96% of this number is on the Pay As You Earn (PAYE) system. This is not the case in some other developed climes. The paper analysed what obtains in the United Kingdom in order to earn from their experiences. It also analysed relevant tax statutes with a bid to covering the tax leakages in the informal sector. The paper concludes that enforcement of tax laws is critical for economic planning and that effective tax administration translates into better and higher tax compliance.
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UDUS LAW JOURNAL, VOL.2, NO. 2, 2021