An Evaluation of Presumptive Tax Schemes in Nigeria: A Study of Lagos-Based SMEs
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Background of the Study
Presumptive tax schemes are designed to simplify the tax process for small and medium enterprises (SMEs) by estimating tax liabilities based on factors such as business size, revenue, or physical assets, rather than actual income. In Nigeria, these schemes aim to encourage tax compliance among SMEs, which are often under-represented in the formal tax system due to their small size and complex operations (Ademola & Olamide, 2023).
Lagos, as Nigeria's commercial capital, hosts a large number of SMEs, many of which operate informally or under-report their income. The introduction of presumptive tax schemes by the Federal Inland Revenue Service (FIRS) in the past decade aims to simplify the tax payment process for these businesses. While these schemes have shown promise, challenges remain regarding their effectiveness in promoting compliance and generating adequate revenue (Sule & Olatunji, 2024). This study evaluates the effectiveness of presumptive tax schemes in Lagos, focusing on the challenges and benefits for SMEs.
Statement of the Problem
Despite the adoption of presumptive tax schemes, many SMEs in Lagos continue to evade taxes or struggle to meet their tax obligations due to complex compliance procedures, lack of awareness, and inadequate enforcement. The effectiveness of these schemes in enhancing tax collection remains unclear, and there is limited empirical evidence on their impact on SME growth and government revenue (Ibrahim & Chijioke, 2023).
This study seeks to evaluate the extent to which presumptive tax schemes have improved tax compliance and revenue generation among SMEs in Lagos and to identify the barriers preventing their full success.
Objectives of the Study
- To evaluate the effectiveness of presumptive tax schemes in promoting tax compliance among SMEs in Lagos.
- To identify the challenges SMEs face in adhering to presumptive tax schemes.
- To recommend improvements to enhance the effectiveness of presumptive tax schemes for SMEs.
Research Questions
- How effective are presumptive tax schemes in promoting tax compliance among SMEs in Lagos?
- What challenges do SMEs face in complying with presumptive tax schemes?
- What strategies can enhance the effectiveness of presumptive tax schemes for SMEs?
Research Hypotheses
- H₀: Presumptive tax schemes do not significantly improve tax compliance among SMEs in Lagos.
- H₀: Challenges faced by SMEs do not significantly affect their compliance with presumptive tax schemes.
- H₀: Proposed strategies do not significantly improve the effectiveness of presumptive tax schemes.
Scope and Limitations of the Study
The study focuses on SMEs in Lagos and evaluates the impact of presumptive tax schemes between 2020 and 2025. Limitations include the diversity of SMEs and the difficulty of obtaining financial data due to the informal nature of many businesses.
Definitions of Terms
- Presumptive Tax Scheme: A tax system where tax liabilities are estimated based on a set of assumptions rather than actual income or profits.
- SMEs: Small and Medium Enterprises, which are characterized by their limited scale and resources.
- Tax Compliance: The act of adhering to tax laws and paying the required taxes.
