Nigeria’s sweeping new tax regime contains “errors, inconsistencies, gaps and omissions” that could weaken its effectiveness unless corrected, professional services firm KPMG Nigeria has warned.
The concerns relate to a package of reforms that came into force at the start of the year, anchored on the Nigeria Tax Act (NTA) and the Nigeria Tax Administration Act (NTAA), alongside new laws establishing the Nigeria Revenue Service and the Joint Revenue Board.
Authorities have presented the overhaul as a cornerstone of efforts to boost government revenue, simplify tax administration and make Africa’s biggest economy more competitive. Nigeria’s tax-to-GDP ratio, estimated at below 10 percent, is among the lowest globally.
But in an analysis released this month, KPMG said several provisions risk creating distortions, discouraging investment and increasing disputes between taxpayers and authorities if left unaddressed.
One of the most significant issues identified relates to the treatment of capital gains. Under Sections 39 and 40 of the Nigeria Tax Act, chargeable gains are calculated as the difference between sale proceeds and the tax-written-down value of assets, with no adjustment for inflation.
This approach is problematic in a high-inflation environment, KPMG said. Nigeria has recorded double-digit headline inflation for eight consecutive years, averaging above 18 percent between 2022 and 2025, according to official data.
Over the same period, asset prices have been heavily influenced by sharp currency depreciation and rising general price levels, rather than pure economic appreciation.
KPMG warned that taxing nominal gains in such conditions could result in individuals and companies paying tax on inflationary gains rather than real increases in value. The firm recommended the introduction of an inflation indexation allowance to adjust asset values when computing capital gains.
Such a measure would reduce distortions in effective tax rates while still enabling the government to raise revenue from genuine capital appreciation, it said.
Investor sensitivity to tax policy has already been evident in financial markets. Despite a strong full-year rally that pushed Nigeria’s stock market index up more than 50 percent, uncertainty over the new capital gains rules triggered heavy sell-offs late last year.
Market capitalisation fell by about 6.5 trillion naira roughly US$4.3 billion in November alone, before recovering to around 99.4 trillion naira, or about US$66 billion, by year-end.
Another contentious provision concerns indirect transfers of assets by non-residents. Section 47 of the Nigeria Tax Act subjects gains from such transactions to Nigerian tax if they result in changes in ownership of Nigerian companies or assets located in the country.
The rule is being introduced at a time when foreign investment remains fragile. Data from the UN Conference on Trade and Development shows foreign direct investment inflows into Nigeria are still below pre-2019 levels.
While indirect transfer rules are common internationally, KPMG noted that they are usually accompanied by detailed guidance, clear thresholds and well-defined reporting obligations to reduce uncertainty for investors.
The firm urged Nigerian tax authorities to issue comprehensive administrative guidelines clarifying the scope and application of the provision, warning that ambiguity could deter foreign investment and increase the risk of disputes.
Foreign exchange treatment under the new law has also raised concerns. Section 24 of the Nigeria Tax Act limits the deductibility of foreign-currency expenses to their naira equivalent at the official central bank exchange rate.
In practice, companies that source foreign exchange from parallel markets often at much higher rates due to shortages cannot deduct the full cost of imports, software subscriptions or overseas services for tax purposes.
KPMG said this effectively inflates taxable profits and raises tax liabilities for businesses already grappling with currency volatility.
While the rule aims to discourage speculative foreign exchange activity, the firm argued it fails to reflect market realities. It recommended allowing deductions based on actual costs incurred, provided transactions are properly documented.
Without adjustments, KPMG warned, the inconsistencies in Nigeria’s new tax framework could undermine investor confidence and dilute the intended benefits of the reform drive.
