As Nigeria implements its most ambitious tax reform in decades, a detailed review by KPMG Nigeria has uncovered significant “errors, inconsistencies, and gaps” in the new laws. While the Nigeria Tax Act (NTA) and Nigeria Tax Administration Act (NTAA) aim to boost the country’s tax-to-GDP ratio, KPMG warns that certain provisions could inadvertently penalize businesses and deter foreign investment.
1. The Inflation Trap: Taxing “Paper Profits”
The new laws require capital gains to be calculated based on the historical cost of an asset without adjusting for inflation.
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The Problem: With inflation averaging above 18% over the last few years, asset prices have skyrocketed in nominal terms. A business selling an asset might show a “gain” on paper, but in terms of real purchasing power, they may have actually lost value.
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The Risk: Taxpayers will be assessed on inflationary gains rather than real economic value. This uncertainty already triggered a ₦6.5 trillion drop in market value on the NGX in late 2025.
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KPMG Solution: Introduce a cost indexation allowance to adjust asset values for inflation before taxing the gain.
2. The Exchange Rate Clash
Section 24 of the NTA limits businesses from deducting foreign-currency expenses beyond their Naira equivalent at the official CBN rate.
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The Reality: Many businesses cannot access enough FX at official rates and must turn to the parallel market.
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The Penalty: If a company pays ₦1,500/$ on the parallel market but the official rate is ₦1,200/$, they cannot deduct that extra ₦300 cost. This artificially inflates their taxable profit, leading to a higher tax bill on money they didn’t actually “make.”
3. VAT Enforcement via Business Penalties
Section 21(p) disallows tax deductions for any business expense where the supplier did not charge VAT.
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The Burden: This effectively turns every business into a “VAT policeman.” If a small supplier in the informal sector fails to charge VAT, the buying company is penalized by being unable to deduct that legitimate business expense.
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KPMG Solution: Delete or modify this provision; VAT enforcement should be the responsibility of the Nigeria Revenue Service (NRS), not the taxpayers.
Summary of Key KPMG Recommendations
| Issue | New Law Provision | KPMG Recommendation |
| Capital Gains | Taxed on nominal proceeds. | Introduce inflation indexation. |
| FX Deductions | Limited to official CBN rates. | Deduct actual costs with documentation. |
| Indirect Transfers | Taxes non-resident share sales. | Provide clear thresholds/thresholds. |
| VAT Compliance | Disallows non-VAT expenses. | Enforce via audits, not disallowance. |
| Non-Residents | Ambiguous filing requirements. | Explicitly exempt if WHT is “final tax.” |
4. Risk to Foreign Direct Investment (FDI)
The new Indirect Transfer rules (Section 47) subject gains from the sale of shares by non-residents to Nigerian tax if it results in a change of ownership of a Nigerian asset.
While common globally, KPMG notes that Nigeria lacks the “detailed guidance and clear thresholds” found in other countries. Without this clarity, foreign investors may view the Nigerian market as too risky or unpredictable, further stalling FDI inflows which remain below 2019 levels.
The Path Forward
For the 2026 fiscal year to be a success, policymakers must address these “trust-eroding” gaps. As Nigeria adapts to a new revenue landscape, the focus must remain on competitiveness and clarity.
Disclaimer: This summary is for informational purposes only and does not constitute professional tax or financial advice. Businesses should consult with tax professionals regarding the specific impact of the Nigeria Tax Act on their operations.
