KPMG Nigeria has identified significant tax law errors and design weaknesses in Nigeria’s 2026 tax legislation that could affect compliance, investment, and revenue outcomes.
Nigeria’s 2026 tax overhaul came into force amid controversy over process and publication, with public debate focusing heavily on alleged executive manipulation of differences between the gazetted and National Assembly versions of the law. That framing diverted attention from a more substantive issue: the law’s real weaknesses lie not in hidden self-dealing, but in drafting flaws, internal inconsistencies, and economic misalignment that shape real-world outcomes.
KPMG deliberately sets aside the version-control debate. It assumes the final, certified tax laws are operative and interrogates them on a different basis—whether the legislation, as enacted, contains internal contradictions, creates economic distortions, embeds compliance gaps, and is misaligned with Nigeria’s macroeconomic realities and international treaty commitments. The result is a technical diagnosis of where the law may underperform or generate unintended consequences if left unamended.
1. Ambiguity over who is taxable
The Nigeria Tax Act lists taxable persons but omits “communities,” even though communities are included elsewhere in the Act’s definition of a “person.”
Why this matters:
This internal inconsistency creates uncertainty about who is legally within the tax net. Where definitions conflict, enforcement becomes unpredictable and disputes more likely—particularly for communal or collective economic arrangements.
2. Controlled foreign company rules lack clarity on dividend treatment
Undistributed foreign profits are deemed “distributed” and included in Nigerian profits, but the Act does not clearly align the treatment of foreign dividends with that of local dividends.
Why this matters:
The absence of clarity creates uncertainty for Nigerian companies with offshore subsidiaries. Without alignment, businesses face difficulty assessing their true tax exposure and may structure operations more conservatively than necessary.
3. Non-resident registration obligations are unclear
Withholding tax is stated to be final for non-residents without a permanent establishment or significant economic presence, but registration requirements under the Tax Administration Act appear not to reflect this.
Why this matters:
Non-resident companies may believe their tax obligations are settled, yet still face registration and filing expectations. This increases compliance friction, risks treaty misalignment, and may discourage cross-border transactions.
4. Withholding tax on overseas insurance premiums conflicts with policy intent
The Act requires withholding tax on insurance premiums paid to non-residents, despite existing regulations that exempt such payments.
Why this matters:
This inconsistency raises the cost of obtaining international insurance cover, particularly for sectors that depend on specialised overseas risk capacity, and may reduce overall insurance penetration.
5. FX deductibility rules do not reflect market constraints
Foreign-currency expenses are deductible only at the official exchange rate, even where foreign exchange was sourced at higher rates due to supply shortages.
Why this matters:
This can inflate taxable profits by ignoring real economic costs. Businesses may end up paying tax on exchange-rate distortions rather than genuine income, increasing operating strain in an already tight macroeconomic environment.
6. VAT-linked expense disallowance shifts enforcement risk
Expenses on which VAT was not charged are disallowed, even where those expenses were wholly incurred for business purposes.
Why this matters:
This effectively shifts VAT enforcement from tax authorities to compliant taxpayers, particularly problematic in an economy with a large informal sector where supplier compliance cannot always be verified.
7. Capital loss deductibility is not clearly stated
The Act is silent on whether capital losses, outside digital or virtual assets, are deductible.
Why this matters:
The absence of explicit guidance increases the likelihood of disputes and uncertainty in investment planning, particularly in asset-heavy sectors where losses are part of normal commercial risk.
8. Personal income tax reliefs may be insufficient after inflation
Although tax bands were expanded, allowable reliefs—such as rent relief capped at ₦500,000—are low relative to current income levels and inflation, and less generous than under the previous framework.
Why this matters:
Overly tight reliefs may affect voluntary compliance, particularly among higher earners, and could encourage tax planning, under-reporting, or relocation rather than broader compliance.
9. Capital gains are computed without inflation adjustment
Chargeable gains are calculated as the difference between sale proceeds and tax-written-down value, without adjustment for inflation.
Why this matters:
In a high-inflation environment, this approach risks taxing inflationary gains rather than real economic value, potentially distorting investment decisions and capital market behaviour.
10. Indirect transfer rules may affect investment attractiveness
The Act taxes gains from offshore disposals that result in changes in ownership of Nigerian companies or assets, without clear thresholds or carve-outs.
Why this matters:
While such rules exist internationally, lack of precision can create uncertainty for investors. In Nigeria’s current economic context, this may lead to hesitation in structuring or exiting investments linked to Nigerian assets.
Final takeaway
The central message from KPMG’s review is clear: the most serious risks in Nigeria’s 2026 tax legislation arise from technical design weaknesses, not covert manipulation. These issues are fixable, but if left unaddressed they could undermine revenue objectives, deter investment, and weaken voluntary compliance.
The success of the reform will depend less on defending the law’s integrity and more on timely, transparent corrections that align policy design with economic reality and administrative capacity.
