Global advisory and audit firm, KPMG, has identified several errors, inconsistencies, gaps, and omissions in Nigeria’s newly introduced Tax Act, warning that urgent review is needed if the country is to achieve its tax reform goals. The firm said while the new tax laws have strong potential to improve revenue generation and modernise tax administration, unresolved issues could weaken their impact and create confusion for taxpayers.
KPMG made this known in its latest newsletter titled “Nigeria’s New Tax Laws: Inherent Errors, Inconsistencies, Gaps and Omissions.” The firm acknowledged that the new Nigeria Tax Act (NTA) and related laws are ambitious and could significantly transform the country’s tax system if properly implemented.
According to KPMG, tax reforms are usually designed to improve fairness, efficiency, and revenue generation, while also supporting economic growth. However, it stressed that these goals can only be achieved if the laws are clear, balanced, and practical.
“There are many provisions in these laws that will result in increased revenue for the government, if well implemented. However, there is always the need to strike a delicate balance between revenue generation and sustainable growth,” KPMG said.
“It is, therefore, critical that the government review the gaps, omissions, inconsistencies and lacunae highlighted in this newsletter to ensure the attainment of the desired objectives.”
Nigeria recently introduced the new tax laws as part of broader efforts to reform its tax system, expand the tax base, and reduce dependence on oil revenue. The reforms are also aimed at improving compliance, reducing tax evasion, and aligning Nigeria’s tax framework with global best practices.
However, KPMG noted that several provisions in the laws lack clarity and could lead to disputes, increased compliance costs, and unintended consequences for businesses and individuals.
One of the major concerns raised by the firm relates to the taxation of non-resident persons under Section 17(3)(b) of the NTA. KPMG explained that while the law outlines when profits of non-residents are taxable in Nigeria, it fails to clearly exempt certain non-residents from tax registration requirements.
The firm pointed out that Section 17(4) of the NTA states that tax deducted at source on payments made by Nigerian residents to non-residents should be treated as final tax where the non-resident has no Permanent Establishment (PE) or Significant Economic Presence (SEP) in Nigeria. However, this provision does not clearly remove the obligation for such non-residents to register for tax under Section 6(1) of the Nigeria Tax Administration Act (NTAA).
“This, in our view, cannot be the intention of the law,” KPMG said. “The intention should be that non-residents that do not have PE or SEP in the country should not be required to file tax returns.”
To resolve this, KPMG recommended that Section 6(1) of the NTAA be updated to clearly include income where deduction at source is the final tax. This, it said, would remove unnecessary registration requirements for non-residents with no significant presence in Nigeria.
KPMG also raised concerns about Section 3(b) and (c) of the NTA, which deals with who taxes can be imposed on. The section lists individuals, families, companies, trustees, and estates but does not mention communities, even though “community” is included in the definition of a “person” under Section 201 of the Act.
The firm said if the intention is to tax communities, this should be clearly stated. Otherwise, the law should expressly exempt communities from tax to avoid confusion.
Another key issue highlighted by KPMG relates to Controlled Foreign Companies (CFCs) under Section 6(2) of the NTA. The firm noted inconsistencies in how dividends from foreign companies are treated compared to dividends from Nigerian companies.
According to KPMG, the law states that undistributed foreign profits should be treated as if they have been distributed and included in the profits of a Nigerian company, which implies taxation at the company income tax rate of 30 per cent. However, dividends from Nigerian companies are treated as franked investment income and are not taxed again.
“This creates unequal treatment,” KPMG said, warning that foreign dividends may end up being taxed more heavily than local dividends. The firm called for clarity to ensure fairness and consistency.
KPMG also criticised Section 20(4) of the NTA, which limits the deduction of foreign currency expenses to their naira value at the official exchange rate published by the Central Bank of Nigeria (CBN). According to the firm, this means businesses that buy foreign exchange at rates higher than the official rate cannot deduct the full cost for tax purposes.
While acknowledging that the rule may be intended to discourage forex speculation and support the naira, KPMG said it does not reflect current realities.
“With the current state of the economy, focus should be on improving liquidity and introducing stricter reporting requirements to track and monitor foreign exchange transactions,” the firm said, adding that access to foreign exchange remains a major challenge for many businesses.
Another area of concern is Section 21 of the NTA, which disallows tax deductions for expenses where Value Added Tax (VAT) was not charged. KPMG warned that this could unfairly punish companies for the failure of their suppliers to charge VAT.
“This implies that a company could be held accountable for any inaction or non-performance by its suppliers,” KPMG said. It added that expenses genuinely incurred for business purposes should be deductible, regardless of VAT issues.
On company profits, KPMG noted that Section 27 of the NTA is unclear on whether capital losses, apart from those related to digital assets, are deductible. The firm said it believes such losses should be deductible and called for clearer wording.
KPMG also reviewed Section 30 of the NTA, which covers personal income tax. The firm observed that allowable deductions for individuals are now limited to items such as pension contributions, housing fund contributions, health insurance, life insurance, and limited rent relief.
While acknowledging that the expanded tax bands aim to protect low-income earners, KPMG warned against making the tax burden too heavy for high-income earners.
“Over taxation can negatively affect economic growth, while under taxation can increase inequality,” the firm said. It warned that excessive tax burdens could lead to non-compliance, capital flight, and reduced investment.
KPMG described the current rent relief cap of N500,000 as too low, especially when compared with allowances under the former Personal Income Tax Act (PITA). It recommended retaining the old consolidated personal allowance to encourage voluntary compliance.
Beyond legal amendments, KPMG urged the government to strengthen international cooperation, improve information sharing, and build the capacity of tax authorities. The firm also advised businesses to review their operations, update systems, train staff, and seek expert support to ensure compliance.