KPMG flags gaps in new Tax Act, warns of disputes, investment loss, capital flight

Global advisory firm KPMG has raised concerns that flaws and ambiguities in Nigeria’s newly enacted tax laws could trigger widespread tax disputes, discourage investment and potentially lead to 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,” obtained by Nationaldailyng.com.

The report examines key provisions of the Nigeria Tax Act (NTA), which came into effect on January 1, 2026, and identifies areas where unclear drafting and policy misalignment could undermine the objectives of the reforms.

One of the major issues highlighted by the firm relates to Section 27 of the NTA, which governs the determination of total profits for companies. KPMG noted that the law does not clearly state whether capital losses—other than those arising from the disposal of digital or virtual assets—are deductible for tax purposes.

While the advisory firm believes the intent of the legislation is to allow such deductions, it warned that the lack of explicit language could result in conflicting interpretations between taxpayers and tax authorities, increasing the risk of disputes.

“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, urging the Federal Government to amend the provision to clearly specify the deductibility of capital losses.

KPMG also criticised Section 30 of the Act, which outlines deductible items in determining individuals’ chargeable income.

According to the firm, allowable deductions under the provision are limited to contributions to the National Housing Fund (NHF), National Health Insurance Scheme (NHIS) and pension schemes, as well as annuities and life insurance premiums, interest on mortgages for owner-occupied residential houses, and rent relief of 20 percent of annual rent capped at N500,000.

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After these deductions, the expanded tax bands and rates are applied to determine tax liability. KPMG argued that the narrow scope of allowable deductions, combined with the relatively low rent relief threshold, 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 noncompliance and capital flight as wealthy individuals relocate to lower-tax jurisdictions,” the firm warned.

Further concerns were raised over Sections 39 and 40 of the Act, which calculate capital gains based on the difference between sales proceeds and the tax-written-down value of assets, without adjusting for inflation.

In an economy characterised by high inflation, KPMG cautioned that this approach could impose heavy tax liabilities on asset disposals even where real economic gains are minimal.

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

The advisory firm warned that unresolved gaps and ambiguities in the NTA could have far-reaching consequences for the economy. Prolonged tax disputes could burden both taxpayers and authorities, resulting in costly litigation, delayed revenue collection and administrative inefficiencies.

More critically, perceived oppressive tax provisions—particularly those affecting wealthy individuals and investors—could weaken Nigeria’s investment climate, dampen entrepreneurship and slow job creation as capital and talent move to more favourable jurisdictions.

The concerns come amid broader fiscal reforms by the Federal Government. In December, the government announced that it would forgo about N1.4 trillion in revenue in 2026 following the reduction of the corporate income tax rate from 30 per cent to 25 per cent as part of efforts to stimulate investment and economic growth.