KPMG has flagged gaps in Nigeria’s New Tax Laws and warned that the errors could hurt investment and revenue goals.
NaijaOnPoint Nigeria reports that KPMG Nigeria has raised the alarm over what it described as “errors, inconsistencies, gaps and omissions” in Nigeria’s newly introduced tax laws, warning that unresolved issues could weaken the reforms’ ability to boost revenue, simplify tax administration and improve the country’s investment appeal.
In its review of the new framework, the professional services firm said flaws in the laws, which took effect at the start of the year, risk undermining the government’s objectives of strengthening Nigeria’s weak tax-to-GDP ratio and modernising the fiscal system.
The reforms are anchored on four major legislations: the Nigeria Tax Act (NTA), Nigeria Tax Administration Act (NTAA), the Nigeria Revenue Service (NRS) Establishment Act, and the Joint Revenue Board (JRB) Establishment Act. Authorities have described the overhaul as the most ambitious tax reform in decades, aimed at aligning Nigeria’s system with global best practices.
Inflation and capital gains tax
One of KPMG’s biggest concerns centres on capital gains tax under Sections 39 and 40 of the Nigeria Tax Act, which calculate taxable gains as the difference between sales proceeds and the tax-written-down value of assets, without adjusting for inflation.
Given that Nigeria has experienced double-digit inflation for eight straight years, averaging over 18 per cent between 2022 and 2025, KPMG warned that taxpayers could end up being taxed on inflation-driven price increases rather than real economic gains. The firm recommended introducing a cost indexation allowance to adjust asset values for inflation, allowing government to tax true capital appreciation while avoiding distortions.
Market reaction highlights uncertainty
The firm pointed to late-2025 market behaviour as evidence of how sensitive investors are to tax uncertainty. Although the NGX All-Share Index rose by more than 50 per cent for the year and market capitalisation neared ₦99.4 trillion, November saw heavy sell-offs, with about ₦6.5 trillion wiped off market value amid uncertainty over new capital gains tax rules.
Foreign investment risks
KPMG also expressed concern over Section 47 of the Nigeria Tax Act, which taxes gains from indirect transfers of shares or assets by non-residents if they affect Nigerian companies. While such rules exist globally, the firm said they are usually supported by detailed guidance and clear thresholds—something Nigeria currently lacks. With foreign direct investment still below pre-2019 levels, KPMG warned that poor clarity could further discourage foreign investors.
FX and expense deductibility
Another red flag is Section 24, which limits the deductibility of foreign-currency expenses to their naira equivalent at the official CBN exchange rate. Since many businesses source FX at higher parallel market rates due to limited official supply, the rule effectively makes part of their costs non-deductible, increasing taxable profits. KPMG said this does not reflect market realities and recommended allowing deductions based on actual costs incurred, subject to proper documentation.
VAT-linked deductions and compliance burden
The firm also criticised Section 21(p), which disallows deductions for expenses where VAT has not been charged, even when those costs are wholly incurred for business. Given Nigeria’s large informal sector and weak VAT compliance, KPMG said the provision unfairly shifts enforcement to compliant businesses instead of defaulting suppliers. It recommended deleting or significantly amending the section.
Non-resident tax uncertainty
KPMG further warned of confusion around non-resident taxation. While the Nigeria Tax Act treats withholding tax as final tax for some non-residents without a permanent establishment, the Nigeria Tax Administration Act does not clearly exempt such entities from registration and filing. This misalignment, especially with Nigeria’s double taxation treaties, could increase compliance costs and deter cross-border investment.
Call for urgent fixes
As Nigeria embarks on its most sweeping tax reform in decades, KPMG said the success of the new regime will depend on clarity, consistency and alignment with international standards. Without prompt amendments and detailed guidance, 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 sustainable economic growth.