Wole Olajide, ACS
President Bola Tinubu recently signed the four (4) Tax Reform Bills into law. These laws include Nigeria Tax Act (NTA), Nigeria Tax Administration Act (NTAA), Nigeria Revenue Service Act (NRSA) and the Joint Revenue Board Act (JRBA), collectively. There are indications that this new tax law will be effective 2026.
The aim of the tax reform is to drive economic growth, increase revenue generation, improve the business environment and enhance effective tax administration across the different levels of government. The Federal Inland Revenue Service (FIRS) has been renamed as Nigeria Revenue Service (NRS).
Changes done to the previous tax system include:
- Increased Exemption Threshold for Small Companies
- Increased Capital Gains Tax (CGT) Rate
- CGT on Indirect Transfer of Shares
- Introduction Of Development Levy
- Minimum Effective Tax Rate (ETR)
- Controlled Foreign Company Rules
- Taxable Profits of Non-Residents
- Minimum Tax for Non-Resident Companies
- Restriction On the Tax Exemption Status of Free Zone Entities
- Introduction Of Economic Development Incentive
- A More Progressive Personal Income Tax (PIT) Regime
- Resident And Non-Resident Individuals Defined
- Introduction Of the Tax Ombuds Office
- Input VAT Recovery
- VAT At Zero Rate on Essential Goods and Services
- VAT Fiscalisation Rules
- Updated VAT Sharing Formula
- Increased Penalties for Non-Compliance
BENEFITS OF THE NEW TAX BILL
- The new Personal Income Tax (PIT) regime proposes that individuals earning NGN800,000 or less per annum will now be exempted from tax on their income and gains. The tax relief will increase the disposable income of low-income earners. This will give people more opportunity to save. That is, they have the marginal propensity to save. Investment conscious individual will have the opportunity to invest from their savings, thereby increasing capital market participation.
- VAT at zero rate on essential goods and services implies that individuals will have money to buy more. Buying more will also mean more production, more revenue and more profit for Companies in that space, and at the end of the day, more dividend for shareholders. The list of zero-rated items include: essential goods and services such as basic food items, medical and pharmaceutical products, educational books and materials, electricity generation and transmission services, medical equipment and services, tuition fees, exports (excluding oil and gas exports). Discerning investors can start taking positions in stocks that fall within these sectors.
- Small companies are now exempt from Companies Income Tax (CIT) and Capital Gains Tax (CGT). Small companies are defined as companies with annual gross turnovers of N100 million (previously N25 million) and below and total fixed assets not exceeding N250 million. This will essentially encourage more investment and active participation in the capital market.
Commenting on the benefits of the new tax regime, Jide Dahunsi, Group Head, Investment Research, SCM Capital Limited, stated thus:
The Capital Gain Tax exemption threshold directly benefits retail investors, as most operate within these thresholds, allowing them to realize tax-free gains on stock sales, encouraging participation in the Nigerian Exchange (NGX). Also, the personal income tax (PIT) exemption threshold has been raised to N800,000 annually (from N300,000), exempting most low-income earners from PIT. This increases disposable income, potentially boosting investments in capital markets.
According to Part VIII, S (34), Gains from share disposals in Nigerian companies are exempt from CGT if the proceeds are below N150 million and the chargeable gain is N10 million in any 12 consecutive months. This encourages retail investor participation and smaller private equity deals, boosting activity in the lower market segment.
Another benefit is Reinvestment Relief. If proceeds from share disposals exceeding N150 million are reinvested in shares of Nigerian companies within the same year, the gains are exempt from CGT (proportionate to the reinvested amount). This incentivizes reinvestment, potentially increasing equity market turnover and supporting growth.
Exemptions granted for small transactions, reinvestment relief, and other incentives could bolster equity market activity as market is poised to benefit from these incentives.
CONCERNS ABOUT INCREASED CAPITAL GAIN TAX AND MARKET PARTICIPATION BY HNIs
One of the key changes in the old tax system that could shake the equity market is the increased Capital Gains Tax (CGT) Rate from 10% to 30%. The progressive income tax of 25% on higher income earners is also a concern. Increased Capital Gain Tax would reduce bottom lines of firms and investors, thereby discouraging large volume transactions in the equity space.
Commenting on the increased Capital Gain Tax, Jide Dahunsi stated thus:
“The Capital Tax Gain (CGT) rate for corporate entities has increased from 10% to 30%, aligning it with the Companies Income Tax (CIT) rate. This could reduce after-tax returns for investors and firms selling equity holdings, thereby discouraging large-scale equity transactions and impacting market liquidity.
The higher CGT rate and compliance requirements may deter large investors, especially in a high inflation environment, which may drive short-term market volatility.
Institutional investors, such as pension funds, asset management firms, insurance companies, and private equity firms, engage in significant equity market transactions. Hence, higher taxes, particularly the increased CGT rate, may discourage frequent portfolio turnover or large-scale disposals, potentially reducing liquidity in certain market segments”.
THE WAY FORWARD
The Managing Director of GlobalView Capital Limited, Aruna Kebira pointed out that participants and the operators in the equities market are always forward-looking. The imposition of any tax will not lead to a reduction of liquidity in the market arena. Since the tax is not on the source of the investment but on the outcome, the investors would seek to make a return that is higher than the incidence of the tax.
Aruna Kebira stated thus:
“As long as the expected market return is high enough to cushion the effect of the tax bill, investors will continue their business unabated.
Savvy and well-informed investor on the NGX always look forward to the possible returns that would attend their investment.
It would have been a different case if the tax incidence were on the investible funds. When an investor is putting his resources into the market, he would envisage a rate of return in mind. The only effect of this on the investors is that they will seek to reflect a higher percentage of return that would mitigate the impact of any tax on their returns, whether retail, high net worth, or institutional”.
Commenting on the Increased Capital Gain Tax that would be effective in 2026, Mallam Garba Kurfi, Managing Director of APT Securities & Funds Limited stated thus:
“Capital Gain Tax goes beyond only gains in the stock market. When people buy and sell properties, there is capital gain. But because sales of shares are more pronounced and well known, that is why attention may be focused on that space. But the question is, who will collect it? Brokers cannot collect Capital Gain Tax on behalf of the government. The modality of collection is not that really clear for now. When I bothered to ask, I was made to understand that the government would look into the accounts of investors to determine how much capital gain they have made. It would definitely be a very difficult task but the government will find a way around it. It will affect the market, but trust me, Nigerians will always find a way around it”.
WILL THE NEW TAX BILL AFFECT DIVIDEND PAYMENT?
- Investors (retail, institutional, and high net-worth individuals) continue to face a 10% Withholding tax deduction on dividend payments. The unchanged rate beams positive delight across the market.
- However listed firms dealing in substantial trading of equity now have their CGT rate increased. This could potentially impair the Earnings Per Share (EPS) and trickle down to the dividend per share in any financial year the transaction occurred.
HOW CAN INVESTORS TAKE ADVANTAGE OF THE NEW TAX REGIME?
Capital market experts gave the following advise regarding how to take advantage of the new tax regime:
- Leverage on the CGT exemptions for small transactions
- Utilize the reinvestment relief opportunity
- Invest in startups and small firms
Aruna Kebira MD/CEO of Globalview Capital Limited stated thus:
“Market participants should be information savvy, seek and apply caution while trading. Focus is the keyword. Do your due diligence and avoid the herd mentality, and refuse to follow ‘where my belle face’
I will not, as an investor, take my resources out of the equities market to the fixed income market because of the tax bill.
Sticking to the formula that has always worked for you is the real deal. While all these are strictly adhered to, investors in the equities market have little or nothing to worry about.”