Advisory firm highlights potential pitfalls in the NTA, warns of risks to compliance, revenue, and economic growth
Global advisory firm KPMG has raised concerns over errors, omissions, and inconsistencies in Nigeria’s new Tax Act (NTA), calling for prompt government review to ensure the legislation achieves its intended objectives of improved revenue generation, fair taxation, and economic growth.
In its latest newsletter, “Nigeria’s New Tax Laws: Inherent Errors, Inconsistencies, Gaps and Omissions,” KPMG acknowledged the potential of the new tax laws to transform tax administration in the country but emphasized the need to address identified shortfalls. The firm noted that some provisions lack clarity, particularly concerning non-resident taxation, controlled foreign companies, and allowable deductions.
Key issues highlighted by KPMG
- Non-resident taxation: Section 17(3)(b) of the NTA does not clearly absolve non-residents without a Permanent Establishment (PE) or Significant Economic Presence (SEP) in Nigeria from tax registration. KPMG recommends updating Section 6(1) of the NTAA to clarify that passive income subject to deduction at source should exempt such non-residents from filing tax returns.
- Community taxation: The firm flagged inconsistencies in Section 3(b) & (c) regarding whether communities are subject to tax, suggesting explicit clarification to avoid ambiguity.
- Controlled Foreign Companies (CFC): Section 6(2) was cited as unclear on the taxation of foreign versus local dividends, which could result in unequal treatment of dividend income.
- Tax deductions and forex treatment: Section 20(4) limits deductions for expenses incurred in foreign currencies to the official Central Bank rate, potentially penalizing businesses due to forex supply challenges. KPMG recommends relaxing this provision to focus on liquidity and reporting rather than limiting deductions.
- Allowable expenses: Section 21 currently disallows deductions for expenses on which VAT was not charged, even if incurred for legitimate business purposes. KPMG proposes allowing all wholly and exclusively business-related expenses to be deductible.
- Capital losses and individual tax reliefs: Section 27 is unclear on the deductibility of capital losses, while Section 30 on personal income tax may not sufficiently balance reliefs for low- and high-income earners. The firm suggested retaining consolidated personal allowances from the previous Personal Income Tax Act (PITA) to encourage voluntary compliance.
Recommendations for government and businesses
KPMG urged the government to review and amend the NTA, address the highlighted gaps, and collaborate internationally to improve tax administration. For businesses, the firm recommends conducting comprehensive tax impact analyses, training finance teams, updating payroll and ERP systems, and ensuring compliance with the new provisions, including e-invoicing and fiscalisation requirements.
The firm warned that failure to address these issues could lead to over-taxation, non-compliance, capital flight, and negative impacts on investment and job creation, stressing the delicate balance between revenue generation and sustainable economic growth.
