Nigeria’s Tax Reforms Under Scrutiny as KPMG Flags Key Weaknesses

Professional services firm KPMG Nigeria has raised red flags over what it described as “errors, inconsistencies, gaps and omissions” in Nigeria’s newly enacted tax laws, warning that unresolved issues could weaken the reforms’ core objectives.

The concerns are contained in KPMG’s review of the tax overhaul anchored on the Nigeria Tax Act (NTA), Nigeria Tax Administration Act (NTAA), Nigeria Revenue Service (NRS) Establishment Act, and the Joint Revenue Board (JRB) Establishment Act, which all came into force at the beginning of 2026.

Government authorities have consistently described the reforms as critical to boosting revenue mobilisation, improving compliance, simplifying tax administration, and strengthening Nigeria’s weak tax-to-GDP ratio. However, KPMG warns that several provisions may produce unintended economic and investment consequences if left unaddressed.

Capital gains, inflation and market behaviour

One of the most significant concerns identified by KPMG relates to Sections 39 and 40 of the Nigeria Tax Act, which require capital gains to be computed as the difference between sale proceeds and the tax-written-down value of assets — without any adjustment for inflation.

This approach is particularly contentious in Nigeria’s macroeconomic context. Headline inflation has remained in double digits for eight consecutive years, averaging over 18 percent between 2022 and 2025, according to the National Bureau of Statistics. Over the same period, asset prices have been heavily influenced by currency depreciation and general price increases.

Market data underscores investor sensitivity to tax policy changes. Despite a strong full-year rally that saw the NGX All-Share Index gain over 50 percent and market capitalisation approach ₦99.4 trillion, the equities market experienced sharp sell-offs in late 2025 — including a ₦6.5 trillion drop in market value in November — amid uncertainty surrounding the new capital gains tax rules.

KPMG cautioned that taxing nominal gains in a high-inflation environment could result in taxpayers being assessed on inflation-driven increases rather than real economic value. The firm recommended introducing a cost indexation allowance to adjust asset values for inflation when computing chargeable gains.

Indirect share transfers and foreign investment

Another area of concern is Section 47 of the Nigeria Tax Act, which subjects gains from indirect transfers of shares or assets by non-residents to Nigerian tax where such transfers result in changes in ownership of Nigerian companies or assets located in Nigeria.

This provision is being introduced at a time when foreign direct investment (FDI) inflows remain weak, with UNCTAD data showing that inflows are still below pre-2019 levels.

While indirect transfer rules exist in other jurisdictions, KPMG noted that such regimes are typically supported by clear thresholds, definitions, and administrative guidance. The firm urged Nigerian tax authorities to issue detailed guidance to reduce uncertainty, minimise disputes, and avoid deterring foreign investment.

FX deductions clash with economic realities

KPMG also highlighted concerns around Section 24 of the Nigeria Tax Act, which restricts the deductibility of foreign-currency expenses to their naira equivalent at the official CBN exchange rate.

In practice, businesses that source foreign exchange from the parallel market due to limited official supply are unable to deduct the full cost incurred, effectively inflating taxable profits and raising tax liabilities.

While acknowledging that the rule aims to curb speculative FX activities, KPMG argued that it fails to reflect market realities. The firm recommended allowing deductions based on actual costs incurred, subject to proper documentation, so businesses are not penalised for structural FX shortages beyond their control.

VAT-linked expense disallowances

Under Section 21(p) of the Nigeria Tax Act, expenses on which VAT has not been charged are disallowed for tax deduction purposes — even where such costs were incurred wholly for business operations.

KPMG warned that this provision could unfairly shift part of the VAT enforcement burden onto compliant taxpayers, particularly given Nigeria’s large informal sector and persistent VAT compliance gaps.

The firm recommended deleting or significantly modifying the provision, stressing that deductibility should depend on whether an expense was wholly, exclusively, and necessarily incurred for business purposes, while VAT compliance should be enforced directly against defaulting suppliers.

Non-resident taxation and compliance uncertainty

KPMG further flagged inconsistencies between the Nigeria Tax Act and the Nigeria Tax Administration Act regarding non-resident companies. While Section 17 of the NTA treats withholding tax as final tax for certain non-resident transactions, the NTAA does not clearly exempt such entities from registration and filing obligations.

Given Nigeria’s network of double taxation treaties — including agreements with the UK, South Africa, Canada, and France — KPMG said the laws must be harmonised to avoid conflicts, reduce compliance friction, and protect Nigeria’s attractiveness for cross-border investment.

The bigger picture

As Nigeria embarks on its most comprehensive tax overhaul in decades, KPMG stressed that clarity, alignment with international best practices, and timely amendments will determine the success of the reforms.

Without swift corrective action, the firm warned that businesses could face higher costs, foreign investors may remain cautious, and capital markets could stay volatile — undermining the broader goal of using tax reform to drive competitiveness and sustainable economic growth.