The ongoing Nigeria tax reform update has brought significant changes with the new Nigeria Tax Act, yet a recent analysis by global advisory firm KPMG highlights critical errors, omissions, and inconsistencies within its provisions. This comprehensive review underscores the urgent need for governmental reconsideration to fully realize the intended objectives of the tax reforms. KPMG’s insights, detailed in their latest newsletter, acknowledge the act’s potential for transforming tax administration across the nation, but also meticulously outline the inherent challenges that could impede its effective implementation and impact on businesses.
Despite the identified shortcomings, the firm reaffirms the transformative capacity of the new tax laws to reshape Nigeria’s fiscal landscape. However, KPMG stresses that the present lacunae could hinder the attainment of sustainable growth, calling for a delicate balance between aggressive revenue generation and fostering a conducive environment for economic expansion. The detailed recommendations provided by KPMG aim to guide policymakers in refining the legislation, ensuring that the act serves its purpose without creating undue burdens or ambiguities for taxpayers operating within the country.
What are the key issues with the new Nigeria Tax Act? The primary issues with the new Nigeria Tax Act, as identified by KPMG, include errors in non-resident taxation, omissions regarding “community” as a taxable entity, inconsistencies in foreign profit treatment, and challenges with tax deductions for foreign currency expenses and uncharged VAT.
One of the significant areas requiring clarification pertains to the taxation of non-resident persons under Section 17(3)(b) of the NTA. KPMG recommends updating Section 6(1) of the Nigeria Tax Administration Act (NTAA) to explicitly include non-residents whose income, such as passive investments, is subject to final tax deduction at source. This crucial amendment would clarify that such non-residents, particularly those without a Permanent Establishment (PE) or Significant Economic Presence (SEP) in Nigeria, are absolved from the tax registration requirement. This distinction is vital for understanding Nigeria tax for residents vs non-residents and ensuring fair and efficient compliance.
Further inconsistencies are noted in Section 3(b)&(c) of the NTA concerning the imposition of tax. While the act specifies individuals, companies, and estates as taxable persons, it notably omits “community,” despite its inclusion in the broader definition of “person” under Section 201. Moreover, the treatment of undistributed foreign profits presents a contradiction: they are to be “construed as distributed” and “included in the profits of the Nigerian company,” implying a 30 percent income tax. This contrasts with dividends from Nigerian companies, which are deemed franked investment income, leading to disparate tax treatments for foreign versus domestic dividends, a key difference when considering the Nigeria Tax Act vs Finance Act approaches.
The act also introduces complexities regarding tax deductions. Section 20(4) stipulates that expenses incurred in foreign currency can only be deducted up to their naira equivalent at the official exchange rate published by the Central Bank of Nigeria (CBN). This provision, while intended to curb speculative foreign exchange transactions and bolster the naira, creates a challenge for businesses acquiring forex at parallel market rates higher than the official rate. Such companies face an inability to claim tax deductions for the difference, impacting profitability and compliance. Businesses seeking Nigeria tax compliance tips must navigate these intricate rules carefully.
Another critical point raised by KPMG concerns Section 21 of the NTA, which includes expenses on which Value Added Tax (VAT) has not been charged as non-allowable tax deductions. This provision effectively holds companies accountable for their suppliers’ or service providers’ non-compliance, denying deductions for valid business expenses even if the company itself is compliant. The firm argues that the sole criterion for allowability should be whether an expense is wholly and exclusively incurred for business purposes, preventing companies from being unfairly penalized for third-party actions.
Issues extend to capital losses and verification for small companies. Section 27 of the NTA lacks definite guidance on the deductibility of capital losses, apart from those arising from digital or virtual assets, creating ambiguity. Furthermore, the act’s definition of small companies, which qualify for certain tax exemptions, poses a verification challenge for larger transacting entities. The current Tax Clearance Certificate (TCC) may not provide sufficient information, leading to difficulties in confirming a counterparty’s “small company” status. This gap highlights the need for a clear Nigeria tax act 2026 guide to address such practical implementation hurdles and serves as a crucial resource for Nigeria tax guide for beginners.
The KPMG Nigeria tax news emphasizes that while the new laws possess the potential to revolutionize tax administration, their successful implementation hinges on a thorough review of these highlighted errors and inconsistencies. The firm urges the government to engage in international cooperation and collaboration, fostering information sharing and building the capacity of the country’s tax administration. This proactive approach is essential for a robust and equitable tax system that supports economic growth and stability. This forms a crucial part of the ongoing Nigeria tax reform update.
In light of these developments, businesses must undertake a comprehensive analysis of the changes’ impact on their operations. This includes a detailed evaluation of their tax footprints to manage potential exposures and ensure full compliance. Establishing adequate documentation for related-party and third-party transactions is paramount to mitigate risks during tax audits. Finance and tax functions within companies should prioritize training programs and expert consultations to deepen their understanding of the new provisions, learning how to comply with Nigeria tax act effectively. Leveraging tools such as best tax software Nigeria 2026 can significantly aid in payroll configuration, e-invoicing, and overall tax-managed services, streamlining compliance processes.
In conclusion, the Nigeria tax reform update presents both opportunities and significant challenges. While the new tax laws are poised to enhance government revenue, the attainment of this objective must not compromise sustainable economic growth. It is therefore critical that the government promptly addresses the gaps, omissions, and inconsistencies identified by KPMG. By striking a judicious balance between revenue generation and fostering a supportive business environment, Nigeria can ensure its tax reforms truly achieve their desired transformative impact, benefiting both the state and its taxpayers.
