Nigeria’s ambitious tax reform drive has entered a crucial stress-test phase, as KPMG identifies what it describes as material errors, inconsistencies, gaps and omissions in the country’s newly enacted tax laws—warning that unresolved flaws could undermine revenue goals, distort investment decisions and weaken voluntary compliance.
In a detailed professional advisory titled “Nigeria’s New Tax Laws: Inherent Errors, Inconsistencies, Gaps and Omissions,” the global audit and tax advisory firm urges an urgent technical review of the reforms to align policy intent with economic reality.
Why the New Tax Laws Matter
The reforms—anchored on the Nigeria Tax Act (NTA) and the Nigeria Tax Administration Act (NTAA)—were designed by the Presidential Fiscal Policy and Tax Reforms Committee to modernise tax administration, expand the revenue base and bring Nigeria closer to global best practice.
While the laws promise long-term gains if properly implemented, KPMG argues that several drafting and policy inconsistencies could create unintended tax burdens, double taxation risks, administrative confusion and litigation exposure if left unresolved.
Key Structural Gaps Identified
1. Who Exactly Is Taxable?
KPMG highlights ambiguity in Section 3(b) & (c) of the NTA, where the law lists taxable persons but omits “communities”—even though communities are defined elsewhere as taxable “persons.”
KPMG’s position:
The law must be explicit—either clearly include communities as taxable entities or expressly exempt them—to avoid uncertainty and enforcement disputes.
2. Foreign Dividends & Double Taxation Risk
Under Section 6(2) of the NTA, undistributed profits of controlled foreign companies are deemed distributed and taxed in Nigeria, potentially at 30% corporate income tax, unlike dividends from Nigerian companies which enjoy franked income treatment.
KPMG warns:
Without clarification, Nigerian companies with offshore subsidiaries may face unequal and punitive tax treatment, discouraging international expansion.
Recommendation:
Harmonise dividend treatment between foreign and local companies to prevent economic distortions.
3. Non-Resident Companies: Registration Trap
KPMG identifies a contradiction between the NTA and NTAA regarding non-resident entities whose Nigerian income is already subject to final withholding tax.
Although Section 17(4) of the NTA treats such deductions as final tax, Section 6(1) of the NTAA still appears to require tax registration.
KPMG’s view:
This cannot be the intention of the law. Non-resident entities without Permanent Establishment (PE) or Significant Economic Presence (SEP) should not be forced into registration or return-filing obligations.
4. Forex Expense Deduction: Policy vs Reality
Under Section 20(4) of the NTA, foreign exchange expenses are deductible only at the official CBN rate, even when businesses source FX at higher market rates due to supply constraints.
KPMG cautions:
This effectively penalises legitimate businesses, understates costs and ignores Nigeria’s FX liquidity challenges.
Recommendation:
Shift focus from punitive disallowances to improved reporting, transparency and FX transaction monitoring.
5. VAT-Linked Expense Disallowance
Section 21 of the NTA disallows business expenses where VAT was not charged—regardless of whether the expense was genuinely incurred.
Implication:
Companies may be punished for the non-compliance of suppliers, creating cascading tax injustice.
KPMG advises:
Expenses should remain deductible if incurred wholly and exclusively for business, regardless of VAT remittance status.
6. Capital Losses, Personal Income & Incentives
KPMG also flags:
- Lack of clarity on capital loss utilisation (Section 27).
- Weak personal income tax reliefs, including a ₦500,000 rent relief considered economically insignificant.
- Gaps in incentives, exemptions, indirect transfer rules, stamp duties and partnership taxation across multiple schedules of the NTA and NTAA.
BRANDECONOMY INSIGHT
Nigeria’s tax reforms are bold, necessary—and timely. But tax systems are precision instruments, not blunt tools. When drafting flaws coexist with aggressive enforcement, the outcome is often revenue volatility, compliance fatigue and capital flight, not fiscal strength.
KPMG’s intervention is not a rejection of reform—it is a call to refine it. A rapid technical clean-up now could prevent years of disputes later, strengthen investor confidence and ensure the reforms deliver growth-friendly revenue, not economic friction.
For policymakers, the message is clear: clarity is the new competitiveness.
What Happens Next
KPMG urges government to:
- Conduct a structured technical review of the new tax laws.
- Harmonise conflicting provisions.
- Balance revenue ambitions with sustainable growth.
- Provide administrative guidance before aggressive enforcement begins.
Businesses, meanwhile, are advised to urgently reassess tax exposure, documentation readiness and compliance frameworks under the new regime.
