LIRS’s Approach to Addressing Tax Compliance Challenges in the Informal Sector of Nigeria.


Nigeria’s informal sector is a bustling and dynamic segment of the economy. It comprises a diverse range of activities, from street vendors and artisans to small-scale traders and service providers. While the informal sector is a significant contributor to economic activity and employment, it has historically faced challenges when it comes to tax compliance. The Lagos Inland Revenue Service (LIRS) recognizes the importance of bringing the informal sector into the tax net and has implemented a strategic approach to address these compliance challenges. In this article, we will explore the LIRS’s approach to fostering tax compliance in the informal sector and its significance for the Nigerian economy.

The Informal Sector in Nigeria:

The informal sector in Nigeria is substantial, accounting for a significant portion of economic activity and employment. However, due to its often-cash-based nature, informality, and limited record-keeping, tax compliance has been historically low in this sector. This has resulted in revenue leakage and a missed opportunity for the government to collect much-needed tax revenue.

LIRS’s Approach to Addressing Tax Compliance Challenges:

  1. Tax Education and Awareness: The LIRS recognizes that many informal sector operators may not fully understand their tax obligations. To address this, the LIRS conducts tax education and awareness programs specifically tailored to the informal sector. These programs provide valuable information on tax requirements, benefits of compliance, and how to fulfill tax obligations.
  2. Simplified Tax Procedures: Recognizing the need for simplicity, the LIRS has streamlined tax procedures for informal sector taxpayers. This includes simplified registration processes and the introduction of easy-to-understand tax forms.
  3. Voluntary Compliance: The LIRS encourages voluntary compliance by emphasizing the benefits of being tax-compliant. Informal sector taxpayers are informed about the advantages of compliance, such as access to government services, eligibility for loans, and the opportunity to expand their businesses.
  4. Collaboration with Associations: Informal sector associations play a crucial role in organizing and representing various groups within the sector. The LIRS collaborates with these associations to reach a wider audience and promote tax compliance among their members.
  5. Digital Solutions: Leveraging digital technology, the LIRS has introduced mobile tax payment platforms and simplified tax calculation tools. These digital solutions make it easier for informal sector taxpayers to meet their tax obligations.
  6. Informal Sector Tax Units: The LIRS has established dedicated tax units focused on the informal sector. These units provide specialized support, guidance, and assistance to informal sector taxpayers.

The Significance for the Nigerian Economy:

The LIRS’s approach to addressing tax compliance challenges in the informal sector has several significant implications for the Nigerian economy:

  1. Increased Revenue: Bringing informal sector businesses into the tax net contributes to increased government revenue, which can be reinvested in public services and infrastructure projects.
  2. Economic Formalization: Encouraging informal sector businesses to register and comply with tax regulations promotes economic formalization, leading to greater economic stability and growth.
  3. Enhanced Services: Tax revenues generated from the informal sector can be used to improve public services, including healthcare, education, and transportation, benefiting both informal sector operators and the wider population.
  4. Fairness and Equity: Promoting tax compliance ensures that all businesses, regardless of their size or sector, contribute their fair share to government revenue.


The Lagos Inland Revenue Service’s approach to addressing tax compliance challenges in the informal sector of Nigeria is a significant step towards harnessing the full potential of this dynamic segment of the economy. Through education, simplification of processes, and collaboration with informal sector associations, the LIRS is paving the way for greater tax compliance. This, in turn, contributes to increased government revenue, economic formalization, and improved public services, ultimately benefiting both informal sector operators and the broader Nigerian society. As the LIRS continues to refine its approach, the collaboration between tax authorities and informal sector stakeholders will be instrumental in driving mutual prosperity and sustainable development in Nigeria.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, You can also reach us via WhatsApp at +2348038460036.