KPMG Uncovers Ambiguities In Nigeria’s Tax Laws, Warns Inconsistencies Could Spark Capital Flight

…Says Unclear Deductions, Capital Gains Rules To Heighten Investor Litigations

…Seeks Urgent Amendments To Sections 30, 39, 40

Professional Audit Service Company, KPMG, has warned that ambiguities, inconsistencies and policy gaps in Nigeria’s newly enacted tax laws could trigger disputes with tax authorities, discourage investment and potentially lead to capital flight, particularly among high-net-worth individuals and corporate investors.

The advisory firm raised the concerns in a report titled “Nigeria’s New Tax Laws: Inherent Errors, Inconsistencies, Gaps and Omissions”, which reviews critical provisions of the Nigeria Tax Act (NTA) that took effect on January 1, 2026.

According to KPMG, while the new law is intended to modernise Nigeria’s tax framework and improve revenue mobilisation, several unclear provisions risk undermining those objectives if not urgently addressed.

One of the key issues identified relates to Section 27 of the Act, which governs how companies determine total profits for tax purposes.

KPMG noted that the provision does not clearly state whether capital losses, excluding those arising from the disposal of digital or virtual assets, are deductible.

Although the firm believes the intention of the law is to allow such deductions, the absence of explicit wording could result in conflicting interpretations between taxpayers and the tax authorities.

“The NTA is not definite on whether capital loss, other than that arising from the disposal of digital or virtual assets, is deductible.

“However, we believe that the intention is for such losses to be deductible,” KPMG stated, advising the Federal Government to amend the provision to clearly specify the deductibility of capital losses.

Without clarification, the firm warned that disputes and prolonged litigation could become inevitable.

The report also scrutinised Section 30 of the Act, which outlines allowable deductions in computing individual chargeable income.

Under the new regime, deductible items are largely limited to contributions to the National Housing Fund, National Health Insurance Scheme and pension schemes, as well as annuities, life insurance premiums, mortgage interest on owner-occupied residential houses and a rent relief of 20 per cent of annual rent capped at N500,000.

KPMG described the scope of these deductions as narrow, particularly when viewed against expanded tax bands and rates applied after the deductions are exhausted.

The firm cautioned that the relatively low rent relief threshold and limited reliefs could be perceived as oppressive, especially by high-income earners.

“Where citizens deem the provisions of the tax law to be oppressive, it may lead to non-compliance and capital flight as wealthy individuals relocate to lower-tax jurisdictions,” the firm warned, adding that perceptions of fairness and clarity are critical to sustaining voluntary compliance.

Further concerns were raised around Sections 39 and 40 of the Act, which deal with the computation of capital gains. Under the current framework, gains are calculated as the difference between sale proceeds and the tax-written-down value of assets, with no adjustment for inflation.

KPMG noted that this approach is particularly problematic in Nigeria’s high-inflation environment, as it could result in significant tax liabilities even where real economic gains are minimal.

“Consequently, any sale of assets after the effective date of the NTA will trigger a substantial exposure to income tax,” the firm said, warning that the absence of inflation adjustments could distort taxable gains and impose an undue burden on taxpayers.

To address this risk, KPMG recommended the introduction of a cost indexation allowance as a “quick policy win.”

The proposed approach would adjust asset costs using the Consumer Price Index from the date of acquisition to the date of disposal, with December 31, 2025, serving as the baseline. According to the firm, such an adjustment would better align tax liabilities with economic realities without artificially increasing capital losses.

Overall, KPMG urged the Federal Government to promptly review and refine the identified provisions to reduce ambiguity, improve certainty and strengthen confidence in Nigeria’s tax system.

The firm noted that timely amendments would not only minimise disputes but also support the broader goal of attracting investment and retaining capital within the economy.