The global advisory firm KPMG has identified various gaps, errors, and inconsistencies in the new Nigeria Tax Act (NTA).
The firm is calling for urgent legislative reviews to ensure the country’s tax reform goals are met, noting that several critical oversights regarding clarity remain in the legislation.
In its latest newsletter, “Nigeria’s New Tax Laws: Inherent Errors, Inconsistencies, Gaps and Omissions,” KPMG acknowledged the potential for the laws to revolutionize tax administration but stated:“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. 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.”
The firm noted that while the new laws aim to foster equity, competitiveness, and economic growth, certain “lacunae” must be addressed.
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Non-Resident Persons: KPMG pointed out a gap in Section 17(3)(b) of the NTA regarding the taxation of non-residents. The firm recommended updating Section 6(1) of the NTAA to ensure non-residents without a permanent presence are not burdened by registration requirements. The report noted:
“This section specifies the conditions under which profits derived by a non-resident are taxable in Nigeria. Although Section 17(4) of the NTA states that payment deducted at source in respect of payments by Nigerian residents to non-residents, irrespective of where the service is rendered, shall be final tax where the non-resident has no permanent establishment (PE) or Significant Economic Presence (SEP) in Nigeria to which the payment is attributable, it does not clearly absolve the non-resident from tax registration requirements under Section 6(1) of the NTAA. This in, our view, cannot be the intention of the law. 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 as provided for in Section 11(3) of the NTAA.”
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Taxation on Communities: Regarding Section 3(b)&(c) of the NTA, KPMG noted that the law lists taxable persons but excludes communities despite including them in definitions. It said:
“The section specifies persons on whom taxes should be levied, including individuals, families, companies or enterprises, trustees, and an estate, but omits ‘community. However, community’ is included in the definition of ‘person’ under Section 201.”
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Dividend Treatment: The firm urged modifications to Section 6(2) concerning foreign dividends to prevent them from being taxed at a disadvantage compared to local dividends, noting:“The Act states that undistributed foreign profits are to be ‘construed as distributed’ but also mandates that they be “included in the profits of the Nigerian company” (implying income tax at 30 per cent). Though dividend distributed by a Nigerian company is deemed to be franked investment income, this does not appear to be the case with dividends distributed by foreign companies. It thus appears that such dividends will be taxed at the income tax rate. Consequently, there will be differences in the treatment of dividends distributed by Nigerian companies and those distributed by foreign companies.”
KPMG sought an amendment to Section 20(4) of the NTA, which limits tax deductions for foreign exchange to the official CBN rate.
The firm stated:“We do not think that this condition is necessary at this time. 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.”
Furthermore, the firm criticized Section 21, which denies tax deductions on expenses if VAT was not charged by the supplier:“This means that such expenses will not be considered allowable tax deductions even when those expenses have been validly incurred for business purposes. This implies that a company could be held accountable for any inaction or non-performance by its suppliers or service providers. While the defaulting service providers may eventually be required to pay the VAT during an audit or investigation, the company will have already been denied the ability to claim a deduction for the related expense. The only criteria should be that any expense that is wholly and exclusively incurred for business purposes should be allowable for tax purposes.”
KPMG also reviewed Section 30 regarding individual income, warning that while protecting low-income earners is an objective, high-income earners should not face “oppressive” rates.
The firm added:“It appears that the objective of these revisions is to ensure that low-income individuals are not taxed heavily. However, it is also not right that the tax payable by high-income earners should be oppressive. Finding the right balance is, therefore, critical. Over taxation can negatively affect economic growth while under taxation can increase inequality. Consequently, many countries embrace the concept of progressive taxation. Efforts are always being made to lessen the tax burden on all taxpayers to enhance sustainable growth. 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. This may eventually stifle economic growth as high tax may discourage entrepreneurship, investment and job creation.”
The firm described the ₦500,000 rent relief as “so insignificant” and suggested that the “erstwhile consolidated personal allowance in the PITA be retained to promote voluntary compliance.”
Finally, KPMG urged businesses to analyze their tax footprints and update their internal systems.
The firm stated:“The analysis should include a detailed evaluation of tax footprints to manage undue exposures and ensure compliance. There must be assurance that adequate documentation is in place to support related-party and third-party transactions and manage exposures during a tax audit/review exercise by the tax authority. There must be proper configuration of companies’ ERPs and other systems to align with the provisions of the Acts, such as PIT tax rates/computation, Fiscalisation/E-invoicing, etc.”
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