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 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-scale building and construction and machine-shop manufacturing.
An unpublished survey in 2008 suggested that the informal sector in Nigeria accounted for about 90% of new jobs in the country, about 80% of all non-agricultural employment and about 60% of urban jobs created, earning it the description of being the backbone of the formal sector. In spite of these percentages records indicate that its contribution to the national revenue in the form of tax is minimal.
A major feature of a fair and just tax system is equity, tax payers paying according to their ability to pay. The present system where employees in the formal sector pay tax because there are records and they can be deducted from source while higher income operators in the informal sector successfully evade and avoided tax or worse still, where hapless petty traders and market women are harassed by multiple layers of tax collectors while the wealthier but smarter informal entrepreneurs pay nothing is far from be fair and the administration not close to being efficient.
The development of effective strategies to expand the tax base in the informal sector in an efficient and equitable way is therefore both an issue of revenue and justice. It is for this reason that the Civil Society legislative Advocacy Centre undertook this Policy Brief as part of its implementation of the Capacity for Research and Advocacy for Fair Tax (CRAFT) program in Nigeria.
We appreciate the efforts Dr. Jumoke Oduwole and Dr. Abiola Sanni for developing the Brief.
It is a very interesting and usefull Brief which can support stakeholders in all of the participating countries to assess the informal sector in their respective countries and come up with effective ways to address this crucial issue.
Download the full Brief here.