KPMG Nigeria has identified what’s described as “errors, inconsistencies, gaps and omissions” in Nigeria’s tax laws that came into force at the beginning of this year.

The professional services company warns that these issues could undermine the attainment of the tax reforms’ stated objectives if left unaddressed.

The reforms, anchored on the Nigeria Tax Act (NTA) and the Nigeria Tax Administration Act (NTAA), alongside the Nigeria Revenue Service (NRS)  Establishment Act and the Joint Revenue Board (JRB) Establishment Act, are aimed at improving revenue generation, simplifying tax administration, and enhancing competitiveness.

Authorities have repeatedly described the overhaul as critical to strengthening Nigeria’s weak tax-to-GDP ratio and adapting the tax system to changing economic realities.

Capital gains, inflation, and market behaviour

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One of the most far-reaching concerns relates to the computation of chargeable gains under Sections 39 and 40 of the Nigeria Tax Act, which require capital gains to be calculated as the difference between sale proceeds and the tax-written-down value of assets, without any adjustment for inflation, analysis by KPMG revealed.

This approach has attracted attention largely because of Nigeria’s inflation environment. Headline inflation has remained in double digits for eight consecutive years, averaging above 18 percent between 2022 and 2025, according to data from the National Bureau of Statistics. Over the same period, asset price movements have been heavily influenced by currency depreciation and general price increases.

Actual market behaviour shows a mixed reaction to tax policy expectations, despite a strong full‑year rally, with the NGX All‑Share Index up more than 50  percent and market capitalisation near N99.4 trillion, the equities market saw significant sell‑offs in late 2025, including a N6.5 trillion drop in market value in November amid uncertainty over the new capital gains tax rules, underscoring investor sensitivity to tax policy shifts.

In its review of the law, KPMG Nigeria noted that taxing nominal gains in a high-inflation environment could result in taxpayers being assessed on inflationary gains rather than real economic value. The firm recommended the introduction of a cost indexation allowance to adjust asset values for inflation when computing chargeable gains.

According to the analysis, such an adjustment would reduce distortions in effective tax rates while still allowing the government to generate additional revenue from genuine capital appreciation.

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Indirect transfer rules and foreign investment risks

Another provision drawing scrutiny 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.

The provision is being introduced amid weak foreign investment inflows. Data from the United Nations Conference on Trade and Development shows that foreign direct investment into Nigeria remains below pre-2019 levels, reflecting broader investor caution.

While similar indirect transfer rules exist in other jurisdictions, analysts note that such regimes are typically supported by detailed guidance and clear thresholds to reduce uncertainty.

KPMG’s analysis recommended that Nigerian tax authorities issue clear administrative guidance defining the scope, thresholds, and reporting obligations associated with indirect transfers. The firm noted that clarity would reduce the risk of disputes, improve compliance, and mitigate potential negative effects on foreign investment flows.

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FX deductions clash with economic realities

Section 24 of the Nigeria Tax Act limits businesses from deducting foreign-currency expenses beyond their naira equivalent at the official CBN rate.

In practice, this means a company importing goods, paying foreign software subscriptions, or settling overseas vendor invoices cannot claim as tax-deductible any amount they spent above the official exchange rate.

For many companies, this is a real problem. Access to official foreign exchange is limited, forcing businesses to pay higher rates on the parallel market. Under the law, the extra cost becomes non-deductible, effectively increasing taxable profits and raising their tax bills.

KPMG warns that while the rule aims to curb speculative foreign exchange activity, it fails to account for supply shortages. The firm recommends that deductibility should reflect the actual cost incurred, provided proper documentation, so businesses aren’t penalized for circumstances beyond their control.

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VAT-linked expense disallowances

Section 21(p) of the Nigeria Tax Act disallows deductions for expenses on which value-added tax has not been charged, even where such expenses were incurred wholly for business purposes.

This intersects with Nigeria’s VAT compliance challenges. The informal sector accounts for a significant share of economic activity, and VAT compliance gaps remain wide, according to assessments by tax authorities and development institutions.

Analysts note that the provision effectively transfers part of the VAT enforcement burden to compliant taxpayers, who may be penalised for supplier non-compliance.

KPMG recommended that Section 21(p) be deleted or substantially modified, arguing that deductibility should depend solely on whether an expense was wholly, exclusively, and necessarily incurred for business purposes. The firm noted that VAT compliance should instead be enforced directly through audits and penalties on defaulting suppliers.

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Non-resident taxation and compliance ambiguity

Uncertainty also surrounds the compliance obligations of non-resident companies. While Section 17 of the Nigeria Tax Act provides that withholding tax constitutes final tax for certain non-resident payments where there is no permanent establishment or significant economic presence, the Nigeria Tax Administration Act does not clearly exempt such entities from registration or filing requirements.

Nigeria has signed over a dozen double taxation treaties (DTTs), including the UK, South Africa, Canada, and France, which align with the principle that final WHT extinguishes further tax obligations in the absence of a taxable presence. Experts say harmonizing the NTA and NTAA with these treaties is critical to avoid conflicts and deter foreign investors.

KPMG recommended that the relevant provisions of the Nigeria Tax Act and the Nigeria Tax Administration Act be harmonised, with explicit exemptions for non-resident companies whose Nigerian tax obligations have been fully discharged through withholding tax. According to the firm, such alignment would reduce compliance friction and improve Nigeria’s attractiveness for cross-border transactions.

As Nigeria enacts its most comprehensive tax overhaul in decades, the path to success will depend on clarity, alignment with international best practices, and swift adoption of recommended amendments. Without these measures, businesses may face higher costs, non-residents could be discouraged from investing, and capital markets may remain volatile. For policymakers, the challenge is not just raising revenue but ensuring that the reforms strengthen competitiveness and sustainable economic growth.

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