Rent relief for Nigerians “so insignificant”: KPMG flags errors in new tax law

Nigeria’s new tax laws that took effect on January 1 risk placing additional pressure on average earners and creating uncertainty for businesses, according to a review by professional services firm KPMG, which says key reliefs are inadequate and parts of the legislation contain errors and inconsistencies.

In its assessment of the Nigeria Tax Act and related reforms, KPMG said the rent relief offered to individuals – capped at ₦500,000 – is too small to provide meaningful support, particularly when compared with allowances available in other countries.

“Therefore, the rent relief of ₦500,000 is so insignificant given the personal allowances that other countries offer their citizens,” KPMG said, warning that the policy offers little real protection amid rising housing costs and persistent inflation.

The firm noted that the new law effectively removes the former consolidated personal allowance, which allowed a 20% income deduction plus ₦200,000. KPMG said the change leaves high-income earners facing an “oppressive” tax burden, while offering minimal relief to middle-class Nigerians who rent their homes.

“Over taxation can negatively affect economic growth while under taxation can increase inequality. Consequently, many countries embrace the concept of progressive taxation,” KPMG wrote.

“Efforts are always being made to lessen the tax burden on all taxpayers to enhance sustainable growth.”

KPMG warned that if taxpayers perceive the law as punitive, compliance could suffer.

“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 said, adding that excessive taxation can discourage entrepreneurship, investment and job creation.

Capital gains, FX losses raise investor concerns

The review also raised concerns about the treatment of capital gains, which are now taxed at 30% – the same rate as company income – without adjustments for inflation. KPMG said the absence of a cost-indexation allowance could discourage asset sales and long-term investment in an economy where prices have risen sharply.

The firm further criticised provisions that allow Nigeria to tax indirect transfers of shares and assets, warning that they could deter foreign investors and prompt a reassessment of capital allocation decisions.

Another contentious section, Section 20(4), prevents companies from deducting foreign-exchange losses if currency was purchased above the Central Bank of Nigeria’s official rate. KPMG argued this effectively taxes businesses on losses arising from liquidity conditions beyond their control.

Drafting flaws, contradictions identified

Beyond policy design, KPMG flagged drafting errors, omissions and contradictions across the new tax laws that could complicate compliance and increase the risk of disputes.

The firm pointed to inconsistencies between the Nigeria Tax Act and the Nigeria Tax Administration Act, including provisions that may require non-resident companies – whose income is already subject to withholding tax – to still register and file returns.

KPMG also said the “certified” Acts released by the National Assembly contain glaring omissions, including the failure to exempt deep-offshore oil operations from the Hydrocarbon Tax, a position that directly contradicts the Petroleum Industry Act.

“These issues appear unintended,” KPMG said, but warned they could raise compliance costs and undermine confidence in the reforms.

Call for independent oversight

While acknowledging the government’s efforts to broaden the tax base and boost revenue, KPMG cautioned that poorly calibrated tax policy risks weakening growth, particularly if it places disproportionate pressure on workers and discourages investment.

The firm also questioned the government’s capacity to independently assess the impact of the reforms. It noted that the Joint Revenue Board — tasked with tax impact analysis — is composed entirely of government officials and cannot provide “unbiased analysis.”

KPMG recommended the creation of an independent fiscal watchdog, similar to the UK’s Office for Budget Responsibility, to strengthen credibility and transparency.

As debate over Nigeria’s tax overhaul intensifies, the firm warned that without urgent amendments to close identified gaps, the reforms risk undermining the very investment and growth they are meant to support.