Nigeria's recently enacted tax legislation has ignited a significant debate, pitting expert warnings against firm government assurances. While professional auditors highlight risks of legal disputes and capital flight, officials maintain the reforms are designed to shield low-income earners and bolster economic recovery.
KPMG Flags Critical Gaps and Ambiguities in New Tax Act
In a detailed analysis, the global audit firm KPMG has raised serious concerns about the Nigeria Tax Act (NTA) which took effect on January 1, 2026. The firm's report, titled 'Nigeria’s New Tax Laws: Inherent Errors, Inconsistencies, Gaps and Omissions,' argues that unclear provisions could undermine the law's goals of modernizing the tax framework and improving revenue.
One major issue centers on Section 27, which governs how companies determine taxable profits. KPMG pointed out that the law is not definitive on whether capital losses, except those from digital or virtual assets, are deductible. This lack of clarity could lead to conflicting interpretations between taxpayers and authorities, resulting in prolonged disputes and litigation.
The firm also criticized Section 30 for its narrow scope on deductions for individual income. Allowable deductions are largely restricted to contributions to the National Housing Fund, National Health Insurance Scheme, and pension schemes. KPMG warned that high-income earners may find the thresholds restrictive, potentially leading to non-compliance or capital flight as wealthy individuals seek lower-tax jurisdictions.
Further concerns were raised about Sections 39 and 40, which calculate capital gains without adjusting for inflation. Given Nigeria's high inflation environment, this could create significant tax liabilities even when real economic gains are minimal. KPMG recommended introducing a cost indexation allowance based on the Consumer Price Index to align taxes with economic reality.
Budget Office DG Dismisses Criticism, Defends Pro-Poor Design
In a strong rebuttal, the Director-General of the Budget Office of the Federation, Tanimu Yakubu, dismissed criticisms as based on "wrong notions and stage-managed arithmetic." He argued that claims the reforms burden the poor selectively ignore key protective provisions.
Yakubu emphasized that a central flaw in the criticism is a "category error," where pension and health insurance contributions are wrongly labeled as taxes. He clarified that these are deductions that reduce taxable income and represent owned benefits, not lost levies.
The most critical protection, according to Yakubu, is the N800,000 annual tax-free threshold. Under the new personal income tax structure, the first N800,000 of yearly income attracts a zero per cent tax rate. He illustrated that a worker earning N75,000 monthly (N900,000 annually) would only have N100,000 above this zero-rated band, resulting in minimal tax exposure, especially after allowable deductions.
He also challenged the narrative that widening the tax base equates to taxing the poor, stating expansion could involve capturing non-compliant high earners and affluent segments of the digital economy instead.
Ex-CBN Deputy Governor Points to Economic Resilience
Adding to the defense of the government's policy direction, former Central Bank of Nigeria Deputy Governor Tunde Lemo stated that Nigeria's economy is showing signs of stabilization. Speaking on January 8, 2026, on Eagle 102.5 FM's 'Frontline' program, Lemo insisted the country is "seeing light at the end of the tunnel" after a difficult year of reforms.
He credited President Bola Tinubu's painful reforms, including the removal of fuel subsidy, for preventing national bankruptcy. Lemo cited declining inflation, improved exchange rate stability, and easing food pressures by December 2025 as evidence of growing resilience.
Defending the new tax regime's timing, Lemo argued taxation is essential for governance and warned against excessive borrowing or central bank financing, which fuels inflation. He highlighted that traders with an annual turnover below N100 million are fully exempt, protecting small-scale vendors. Lemo concluded that the new law safeguards the poor more than the rich, and that elite critics are using the poor as mouthpieces in the debate.
The contrasting perspectives set the stage for ongoing scrutiny of the NTA's implementation, with its success likely hinging on how the government addresses the identified ambiguities while maintaining public trust in the reform agenda.
