KPMG Flags 5 Major Errors in Nigeria’s New Tax Laws
The Nigerian economic landscape is currently navigating a significant transition following the implementation of a massive tax overhaul that took effect on January 1, 2026. While the Federal Government aims to modernize the system and improve the tax-to-GDP ratio through the Nigeria Tax Act (NTA) and the Nigeria Tax Administration Act (NTAA), global professional services firm KPMG Nigeria has raised an alarm.
In a detailed review, KPMG identified critical “errors, inconsistencies, and gaps” that could undermine the very goals of these reforms. For business owners, investors, and taxpayers, understanding these pitfalls is essential for compliance and financial planning.
Here are the five major errors flagged by KPMG and their implications for the Nigerian economy.
1. The Inflation Blind Spot in Capital Gains Tax
One of the most glaring issues identified lies in Sections 39 and 40 of the Nigeria Tax Act. Currently, the law requires capital gains to be calculated as the difference between sale proceeds and the tax-written-down value of assets—without any adjustment for inflation.
In a country where headline inflation has averaged over 18% in recent years, taxing “nominal gains” is essentially taxing inflation rather than real economic profit. KPMG warns that this could deter long-term investment. To fix this, they recommend a cost indexation mechanism, ensuring investors are only taxed on genuine capital appreciation.
2. Ambiguity in Indirect Transfers and Foreign Investment
Section 47 of the NTA targets gains from indirect transfers by non-residents. While this aligns with international practices, it lacks the necessary clarity regarding thresholds and reporting obligations.
With Foreign Direct Investment (FDI) into Nigeria still recovering to pre-2019 levels, vague tax laws create a “risk premium” that scares away offshore capital. Without clear administrative guidelines, these provisions might lead to endless legal disputes between the Nigeria Revenue Service (NRS) and international investors.
3. The Foreign Exchange (FX) Deduction Trap
Perhaps the most practical challenge for businesses is Section 24. This provision restricts companies from deducting foreign-currency expenses beyond their Naira equivalent at the official CBN exchange rate.
As many Nigerian businesses know, sourcing FX at the official rate is often impossible, forcing them into the parallel market where rates are significantly higher. By disallowing these actual costs as deductions, the law effectively inflates taxable profits. KPMG argues that this unfairly penalizes businesses for FX supply constraints beyond their control.
4. VAT-Related Expense Disallowances
Under Section 21(p), the law disallows deductions on business expenses if VAT was not charged on them. While intended to drive VAT compliance, this rule places the burden of enforcement on the buyer rather than the defaulting supplier.
In a country with a massive informal sector, this could lead to a situation where compliant taxpayers pay more tax simply because their vendors failed to issue VAT invoices. Experts suggest that VAT enforcement should be handled directly by the revenue authorities rather than being used as a tool to disqualify legitimate business expenses.
5. Compliance Confusion for Non-Resident Companies
Finally, there is a technical conflict between the NTA and the NTAA regarding non-resident companies. While one law suggests that Withholding Tax (WHT) serves as the final tax for certain entities, the other fails to explicitly exempt them from cumbersome registration and filing requirements.
This inconsistency creates a “compliance nightmare” for foreign partners and service providers, potentially discouraging cross-border transactions that are vital for Nigeria’s technological and industrial growth.
Final Thoughts: The Path Forward
Nigeria’s tax reforms are a bold step toward fiscal sustainability, but as KPMG’s analysis shows, the “devil is in the details.” For these laws to succeed, the government must act quickly to harmonize the legislation and provide clear administrative guidelines.
Failure to address these five critical errors could lead to market volatility, reduced foreign investment, and an increased tax burden on an already struggling private sector.
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