The Presidential Fiscal Policy and Tax Reforms Committee has issued a detailed response to KPMG’s review of Nigeria’s new tax laws, arguing that much of the professional services firm’s analysis mischaracterises deliberate policy choices as “errors” or “omissions.”
While acknowledging that some of KPMG’s observations raise legitimate implementation and clerical issues, the Committee said the majority of the critique reflects misunderstandings of policy intent, missed reform context, and the presentation of professional preferences as factual defects.
Policy disagreement is not legislative error
According to the Committee, a significant proportion of the issues described by KPMG as errors fall into one or more of the following categories: analytical mistakes by the firm, incomplete understanding of the law, failure to situate provisions within the broader reform objectives, disagreement with deliberate policy choices, or minor clerical matters already identified internally.
The Committee stressed that disagreement with policy direction should not be framed as legislative error. It noted that other professional firms engaged directly during the reform process, allowing for clarification and mutual learning, rather than publishing post-hoc critiques that blur the line between technical defects and policy preferences.
Clarifying key policy choices under the new tax laws
Taxation of shares and stock market impact
The Committee rejected claims that the new chargeable gains framework would trigger a sell-off in the equities market. It explained that gains on shares are not subject to a flat 30 percent tax rate. Instead, the framework applies graduated rates ranging from zero to a maximum of 30 percent, which is scheduled to reduce to 25 percent.
It added that approximately 99 percent of investors qualify for unconditional exemptions, while others may benefit through reinvestment provisions. The strong performance of the stock market was cited as evidence that investors understand the reforms as strengthening corporate fundamentals rather than undermining them.
Commencement date and transition mechanics
Responding to proposals that the commencement date should align strictly with the start of accounting periods, the Committee said such an approach underestimates the complexity of a wholesale tax overhaul. It noted that tax reforms affect multiple assessment bases, continuous transactions, audits, credits, deductions, and penalties across overlapping periods.
Limiting commencement to a single accounting date, it argued, would fail to address these transition realities and should not be presented as a universal “gold standard.”
Indirect transfer of shares
The Committee defended the taxation of indirect transfers of shares as a deliberate policy choice aligned with global best practices and international efforts to combat base erosion and profit shifting.
It said the provision is designed to close long-standing avoidance loopholes exploited by multinational groups and is not intended to undermine competitiveness. Assertions that the rule threatens Nigeria’s economic stability were described as exaggerated.
VAT treatment of insurance premiums
On VAT treatment, the Committee said a specific exemption for insurance premiums is unnecessary because insurance does not constitute a taxable supply under the law. Insurance involves the transfer of risk, not the supply of goods or services subject to VAT.
As this has long been the administrative and legal position, the Committee argued that creating a specific exemption would be redundant rather than corrective.
Issues reflecting misunderstanding, not drafting defects
Use of “community” in tax definitions
The Committee dismissed concerns about the inclusion of “community” in the definition of a “person” but its omission from the charging section. Under established principles of statutory interpretation, definitions apply wherever the defined term is used unless the context requires otherwise.
It noted that the use of inclusive definitions is standard drafting practice and does not create ambiguity or expand the tax net unintentionally.
Composition and mandate of the Joint Revenue Board
The Committee said the composition of the Joint Revenue Board is intentional and reflects its role as a coordination body for revenue authorities across tiers of government. Its mandate is to provide a sub-national revenue perspective that complements fiscal policy, not to function as an independent fiscal watchdog.
This structure, it added, mirrors the operation of the former Joint Tax Board and supports effective inter-agency coordination.
Treatment of foreign and local dividends
According to the Committee, KPMG conflated foreign-controlled companies with foreign operations of Nigerian companies. Dividends from foreign companies cannot be treated as “franked” because no Nigerian withholding tax is deducted at source.
The different treatment of local and foreign dividends was described as a deliberate and well-understood policy distinction reflecting their fundamentally different tax characteristics.
Non-resident registration and final tax
The Committee rejected the view that withholding tax being final should automatically exempt non-residents from registration or filing obligations. It said registration and returns serve purposes beyond revenue collection, including data integrity, audit trails, and compliance monitoring.
This approach, it added, is consistent with requirements placed on residents who must still file returns even where withholding tax represents final liability.
Proposals the Committee says would undermine reform objectives
Exemption for foreign insurance premiums
The Committee warned that exempting foreign insurers from tax while local insurers remain taxable would disadvantage domestic firms and weaken Nigeria’s insurance sector. The current policy, it said, is designed to promote local capacity and ensure a level playing field.
Parallel-market foreign exchange deductions
Disallowing deductions for foreign exchange purchased at parallel-market rates was described as a deliberate fiscal policy choice aligned with monetary policy objectives. By removing tax incentives for parallel-market transactions, the policy aims to discourage arbitrage, stabilise the naira, and redirect demand to official channels.
The Committee stressed that this reflects policy coherence, not legislative error.
VAT-linked deductibility
Linking deductibility of expenses to VAT compliance was defended as an anti-avoidance measure intended to remove advantages previously enjoyed by businesses patronising VAT-evading suppliers. The Committee said businesses have tools—such as self-charging mechanisms—to manage this risk.
Progressive personal income tax
The Committee disputed claims that the top marginal personal income tax rate is oppressive. It noted that effective rates can be significantly lower after pension contributions and remain competitive internationally.
The shift toward higher personal rates alongside lower corporate tax rates was described as a strategy to reduce the tax burden associated with business formalisation.
Factual corrections highlighted by the Committee
The Committee said KPMG’s analysis contained factual errors, including claims relating to the Police Trust Fund, which expired in mid-2025 under its own enabling law. It also noted that issues around verification of small-company status pre-date the new tax laws and were introduced under earlier finance legislation.
What the Committee says KPMG left out
According to the Committee, KPMG failed to highlight several major structural improvements under the new laws, including tax harmonisation, the scope for reduced corporate tax rates, expanded VAT input credits, exemptions for low-income earners and small businesses, elimination of minimum taxes on turnover and capital, and improved incentives for priority sectors.
The Committee emphasised that the tax reform followed extensive consultations, public hearings, and stakeholder engagement. While minor clerical or cross-referencing issues may arise in any major overhaul, it said these are already being addressed through administrative processes.
The effectiveness of the new tax framework, the Committee concluded, will depend on guidance from tax authorities, implementing regulations, and continued engagement with stakeholders. It urged a shift from static critique to constructive partnership in implementing the reforms.
