We draw your attention to a Tax called Capital Gains Tax. This is
because there is an increase in the number of people planning to
acquire landed property either for investment purposes or for private
residence. Though this Tax is NOT only applicable to gains from landed
property, its applicability to land transactions is more pronounced
when a Purchaser of land seeks to formally register the transfer of the
land to him or herself.
Also, from experience, the first contact when seeking to acquire a
landed property is with an Agent who may have some personal or
religious influence with the intending Purchaser. Many of these agents
will not disclose the existence of this Tax until the intending
Purchaser seeks to register his title with the Government.
What is Capital Gains Tax?
Capital Gains Tax is a tax payable by the Owner of any disposal asset
on the profit he derived from selling the asset, over and above the
original costs of his purchasing the asset, maintaining the asset,
costs of disposal, etc. Simply put, Capital Gains Tax is a tax payable
on the profit on the disposal of assets. The Law does not recognise or
include losses in this definition.
To arrive at what amount is chargeable/liable to Capital Gains Tax, the
following deductions should be made from the total sum paid for
disposing off the asset: -
(a.) The amount or value of acquiring the asset;
(b.) The Income of the Owner of the asset charged under Personal
(c.) Allowances incurred wholly, exclusively and necessarily for the
acquisition of the asset;
(d.) Incidental costs for the disposal of the asset;
(e.) Expenditure for the improvement/enhancement of the value of the
(f.) Any expenditure for the establishment, preservation and
defending of the title of the asset;
(g.) Any incidental costs of the disposal of the asset.
What is a disposal?
A quick mention must be made that Capital Gains Tax was introduced in
Nigeria in 1967. This was just before the Nigerian Civil War and the
Nigerian Government, at the time, foresaw that it would require more
revenue to prosecute the coming war. Further, a similar tax was
introduced in the United Kingdom some years prior to this time and both
legislation carefully define when an asset is disposed and liable to
this tax; this is to prevent tax avoidance.
The Capital Gains Tax Act, which is the applicable Law to this tax,
defines a disposal to include \" .. any other disposition of asset,
notwithstanding that no asset is acquired by the person paying the sum\".
Assets attracting Capital Gains Tax.
Some assets are enumerated under the Capital Gains Tax Act as being
typical in attracting capital gains tax. They include:
(i.) Plant and machinery, land and buildings, goodwill of a
(ii.) Debts, options, incorporeal property generally.
(iii.) Profits from foreign exchange transactions.
(iv.) Any other form of property by a person disposing of it.
Rate of Capital Gains Tax.
The rate of charge for Capital Gains Tax is Ten Percent (10%) of the
exact gain made by the Owner of the disposed assets after deducting all
allowable allowances. The period of accessing and charging this Tax is
January to December of each year. This is so even where the Owner of
the asset dies in that year of assessment provided the gain was made
before he died.
Who administers Capital Gains Tax?
Although the Capital Gains Tax Act is a Federal legislation, many
States have also re-enacted this Law in their Statute books. In
practice, the States Board of Internal Revenue (SBIR) are responsible
for collecting capital gains tax from individuals while the Federal
Board of Internal Revenue (FBIR) is responsible for the ones from
Exemptions to paying this Tax.
Not all disposable assets are liable to the charge of Capital Gains
Tax. Owners of the following mentioned assets are exempted from paying
this Tax when disposing off their asset; this is to encourage
enterprise in some sectors of the Nigerian economy and also private
individuals in some areas of life.
1. Gains on Stock, shares, and other government securities such as
treasury bonds, premium bonds and savings certificates.
2. Ecclesiastical, charitable or educational institutions of a public
3. Any statutory or registered friendly society.
4. Any co-operative society registered under the Co-operative
Societies Law of any State in the Federation of Nigeria.
5. Any trade union registered under the Trade Union Act.
6. Gains on a decoration awarded for gallantry conduct.
7. Gains accruing to statutory bodies.
8. Gains arising from acquisitions, mergers, or takeovers provided
that no cash payment is made in respect of the shares acquired.
9. Gains on policies of assurance or deferred annuity unless the
beneficiary is not the original Owner as in an estate.
10. Compensation for a wrong or injury of libel, slander, enticement,
loss of office in a personal or professional capacity.
11. Gains from the main or only private residence of the individual
provided that the area does not exceed one acre.
12. Gains on private vehicles.
13. Gains on any asset used for the purpose of a trade or business
provided that the gain is used for replacing the old asset sold.
14. Gains from a provident or retirement benefit scheme.
15. Unit holders of a Unit Trust provided the proceeds are not
16. Any diplomatic body.
Disadvantages of the Capital Gains Tax Act.
There are many problems with the management and administration of
Capital Gains Tax as presently implemented. They include: -
1. The principal problem is that of a lack of data or record
keeping in order for the tax authorities to be aware of when a capital
gain has being made and liable to payment of this tax. This is
especially as Nigeria continues to maintain a cash based economy as
opposed to credit or electronic one.
2. In real practice, what is charged by the Tax Authorities, as
Capital Gains Tax, is the entire amount or capital derived by the Owner
of the asset when disposing off that asset. This is in marked contrast
with the provision of the Law which requires that only the exact gain,
after deducting the allowable amounts stated above, are chargeable to
capital gains tax. Again, the problem is that of a lack of reliable and
genuine data and typical bureaucratic laziness to investigate what the
capital gain is.
A possible solution to the above problem will be for the Owner of the
asset to maintain a good data of the transactions on the asset; fill
his tax returns faithfully and challenge any assessment that is
contrary to what the Law provides for.
3. In land transactions, the intending Purchaser usually fails to
inquire, negotiate and obtain some credit upfront for this tax by
deducting it from the total amount to be paid to the Vendor. This
therefore exposes the Purchaser to this charge as the State Government
is not interested in who pays the tax provided it is paid. This is
particularly so as these land transactions are the main avenue for
collecting this tax.
Unfortunately, the above government practice is very unfair to the
Purchaser who will want to register his title to his new property in
order for it not to be in any jeopardy from a third party.
4. Though the government is allowed to charge and collect this tax
in the event of a profit, same is not allowed in the event of a loss as
the Owner bears the loss alone. It would have being expected that this
Law should have allowed a loss to be treated as an allowable deductible
Mr. Ade Ipaye, a Law Lecturer at the University of Lagos, in his
article titled ÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Â ÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢ÃƒÆ’Ã†â€™ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã¢â‚¬Â¦Ãƒâ€šÃ‚Â¡ÃƒÆ’Ã†â€™ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â¦ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã¢â‚¬Â¦ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œCapital Gains TaxÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Â ÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢ÃƒÆ’Ã†â€™ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã¢â‚¬Â¦Ãƒâ€šÃ‚Â¡ÃƒÆ’Ã†â€™ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã†â€™ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â and published by the Chartered
Institute of Taxation of Nigeria in the Book ÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Â ÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢ÃƒÆ’Ã†â€™ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã¢â‚¬Â¦Ãƒâ€šÃ‚Â¡ÃƒÆ’Ã†â€™ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â¦ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã¢â‚¬Â¦ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œTax Guide & StatutesÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Â ÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢ÃƒÆ’Ã†â€™ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã¢â‚¬Â¦Ãƒâ€šÃ‚Â¡ÃƒÆ’Ã†â€™ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã†â€™ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â
enumerated other problems with this Law as noticed by him and other
commentators. They include:
5. The Capital Gains Tax Act is unwieldy as it is not always easy
to identify the subject matter of the tax.
6. The high rate of inflation in Nigeria wipes out the real
value of the asset such that the Owner is at the losing end in real
terms when disposing off the asset. He recommended that allowance
should be made for inflation when paying this tax as is done in some
7. The rate of the tax is high and this will encourage avoidance.
In conclusion, I am in agreement with many other Commentators that the
rate of the Capital Gains Tax should either be reduced after amending
the Law to accommodate the above disadvantages or the entire Law should
be merged with the Personal Income Tax. The latter is more practical
and realistic in successfully administering this tax and reducing its
current high rate of avoidance.