Presumptive Tax Could Erode Profits Of Low‑margin Distributors, KPMG Warns

Businesses that rely on informal distributors, wholesalers and agents may face rising procurement and distribution costs under Nigeria’s Presumptive Tax Regulations, 2026, with the additional burden likely to be passed on to consumers through higher prices, a report by KPMG has warned.

KPMG, in its report on “Nigeria’s Presumptive Tax Regulations, 2026: Key Highlights and Practical Implications for Taxpayers”, said that although corporate entities are generally outside the scope of the presumptive tax regime, the framework could have significant indirect commercial implications for businesses whose supply chains depend on operators in the informal sector.

KPMG explained that distributors with annual turnover above N12 million could become liable to a one per cent presumptive tax on turnover, increasing their operating expenses.

Noting that the impact of this could be particularly severe for businesses operating on thin margins, the report said, “where these distributors operate a high volume, low margin business model, a turnover-based tax may represent a significant proportion of their net profit.

This could reduce profitability and result in upward price adjustments.”

KPMG warned that the additional tax burden may not stop with distributors, as businesses that source products through informal distribution networks could also experience higher operating costs.

“Businesses that depend on informal distribution networks may, therefore, experience higher procurement or distribution costs, which could ultimately be passed on to consumers through higher prices,” the report said.

It urged businesses to begin evaluating the likely impact of the new tax framework on their operations, saying “businesses should assess the potential impact of the Regulations on their supply chains, particularly where they engage informal distributors, agents or service providers that may fall within the scope of the regime.”

The report noted that the Presumptive Tax Regulations were introduced to widen the tax net by bringing businesses in the informal economy that do not maintain adequate accounting records into the tax system through a simplified tax framework.

However, KPMG stressed that the regulations could have broader commercial consequences beyond tax compliance as “informal businesses that exceed the N12 million threshold may face higher tax costs, potentially reducing already thin margins, and affecting supply chains.”

It further warned that businesses working with informal vendors, distributors, agents and service providers should assess the potential impact of the regulations.

While the report acknowledged that the regulations could help broaden Nigeria’s tax base and improve compliance within the informal economy, it maintained that successful implementation would require businesses to understand the wider implications for their supply chains and operating costs.

According to KPMG, companies that rely heavily on informal distribution channels may need to review their sourcing strategies and pricing models as the new tax regime takes effect, particularly where increased compliance costs are likely to be passed through the value chain to the final consumer.

Aside from this, the KPMG report identified potential implementation challenges arising from the prohibition of cash tax payments under the new regime. While KPMG noted that the provision supports government’s efforts to enhance transparency and minimise revenue leakages, it cautioned that its success would depend largely on the availability of adequate digital payment infrastructure across the country.

KPMG said the regulations empower the Relevant Tax Authorities to register taxpayers outside the tax net and issue them Tax Identification Numbers, a task that will require significant investment in taxpayer identification systems, technology, data sharing and inter agency collaboration because of the size of Nigeria’s informal economy.

It added that “the prohibition of cash tax payments aligns with broader efforts to promote transparency and reduce revenue leakages, but it will also require sufficient access to digital payment infrastructure, particularly in underserved areas.”