KPMG Warns New Tax Laws May Trigger Disputes, Capital Flight

Professional services firm KPMG has warned that ambiguities and structural gaps in Nigeria’s newly enacted tax framework could trigger disputes, discourage investment, and fuel capital flight if left unaddressed.

The warning is contained in KPMG’s latest report titled “Nigeria’s New Tax Laws: Inherent Errors, Inconsistencies, Gaps and Omissions,” which reviews key provisions of the Nigeria Tax Act (NTA) that took effect on January 1, 2026.

According to the firm, while the NTA is intended to modernise Nigeria’s tax system and broaden revenue mobilisation, unclear drafting and policy misalignment in several sections could undermine these objectives.

Capital loss deductibility raises red flags

One of the key concerns identified in the report relates to Section 27 of the NTA, which governs the determination of total profits for companies.

KPMG noted that the provision does not clearly state whether capital losses excluding those arising from digital or virtual assets are deductible for tax purposes. This lack of precision, the firm warned, could result in conflicting interpretations between taxpayers and 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.

To avoid disputes, the firm advised the Federal Government to amend the law to explicitly provide for the deduction of capital losses.

Narrow individual deductions may fuel non-compliance

KPMG also raised concerns over Section 30, which outlines allowable deductions in computing individual chargeable income.

Under the current framework, deductible items are largely restricted to pension contributions, National Housing Fund (NHF), National Health Insurance Scheme (NHIS) contributions, annuities, life insurance premiums, mortgage interest on owner-occupied homes, and rent relief of 20% capped at ₦500,000.

The advisory firm argued that the narrow scope of deductions, combined with expanded tax bands and higher rates, could be perceived as punitive particularly 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,” KPMG warned.

Inflation-blind capital gains tax poses risks

Further scrutiny was directed at Sections 39 and 40, which calculate capital gains based on the difference between sales proceeds and the tax-written-down value of assets without adjusting for inflation.

Given Nigeria’s persistent high inflation, KPMG cautioned that this approach could result in significant tax liabilities even where real economic gains are marginal.

“Consequently, any sale of assets after the effective date of the NTA will trigger a substantial exposure to income tax,” the firm said.

As a remedy, KPMG recommended the introduction of a cost indexation allowance, using the Consumer Price Index (CPI) from the date of asset acquisition to disposal, with December 31, 2025, as the baseline. This, it noted, would better align tax obligations with economic reality without increasing capital losses.

Why this matters

KPMG warned that unresolved ambiguities in the NTA could lead to prolonged tax disputes, delayed revenue collection, and rising litigation costs for both taxpayers and authorities.

More critically, perceptions of excessive or unfair taxation could weaken Nigeria’s investment climate, undermine entrepreneurship, and accelerate capital flight posing risks to economic growth and job creation.

What you should know

The Federal Government has projected a ₦1.4 trillion revenue sacrifice in 2026 following the reduction of Corporate Income Tax (CIT) from 30% to 25%.

The Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, has clarified that Nigeria’s revised Capital Gains Tax (CGT) regime will not apply retroactively to gains made before 2026.