Clarification on the New Capital Gains Tax (CGT)

The Presidential Fiscal Policy and Tax Reforms Committee has provided clarity on the new Capital Gains Tax (CGT) rules that will take effect from January 1, 2026. The reform is designed to make Nigeria’s capital market more investor-friendly, reduce risk, and improve fairness in taxation, according to the Committee.

Key Highlights:

•  Fairer Tax Structure:

The previous flat 10% CGT has been replaced with progressive rates (0–30%) tied to income levels. This seeks to ensure that smaller investors and lower-income earners will pay less or nothing, while those in higher income brackets and institutional investors pay more.

•  Reinvestment Incentive:

Investors who reinvest their sale proceeds in another Nigerian company’s shares within 12 months will not pay CGT on such gains. This seeks to encourage long-term market participation and support domestic capital formation.

•  Protection for Retail and Institutional Investors:

The new framework includes broad exemptions for key investment vehicles such as Pension Fund Administrators (PFAs), Real Estate Investment Trusts (REITS), NGOs, and small companies with turnover below ₦100 million. Additionally, transactions below ₦150 million and total gains below ₦10 million within 12 months will be exempt from CGT.

•  Reset of Cost Base:

Investors’ existing shareholdings will have their cost base reset to the higher of purchase cost or market price as at 31 Dec 2025, ensuring gains before 2026 are not taxed twice.

•  Allowable Deductions:

Investors can now deduct brokerage fees, levies, capital losses, margin interest, and other legitimate costs when calculating their potential tax liability.  This brings Nigeria’s system closer to international tax standards and recognizes the true cost of investment.

•  Simplified Compliance Process:

Tax filing timelines have been streamlined; Individuals must file CGT returns by 31 March each year, while companies have up to six months after their accounting year-end. In the near future, brokers may be authorized to deduct CGT at source, simplifying compliance for investors.

Old vs. New Capital Gains Tax (CGT) Framework

Nigeria’s revised Capital Gains Tax (CGT) framework introduces significant changes aimed at promoting fairness, transparency, and long-term investment according to the Committee. The table below highlights the key differences between the old and new systems.

Feature	Old Framework	New Framework
Tax Rate	Flat 10% on all capital gains, regardless of income or investor type.	Progressive rates (0%–30%) based on income or profit level. The top rate of 30% applies to large corporate investors, expected to reduce to 25% under the broader corporate tax reform.
Deductions & Allowable Costs	Most transaction costs (brokerage fees, levies, margin interest) were disallowed, meaning investors could be taxed even when they incurred net losses.	Legitimate investment costs including brokerage fees, levies, capital losses, and margin interest can now be deducted, ensuring investors are not taxed on net losses.
Cost Base Adjustment	Existing shareholdings’ cost base remained at historical purchase price, potentially resulting in double taxation of pre-existing gains.	Cost base of existing shares revalued at the higher of purchase price or market value as of 31 December 2025, preventing double taxation of pre-2026 gains.
Equity & Fairness	Favoured high-income and institutional investors disproportionately.	Introduces a more equitable system, with low-income and small investors paying little or no CGT.
Filing & Compliance	Individuals and companies had less structured filing requirements and limited guidance on deadlines.	Individuals: file by 31 March of the following year. Companies: file within six months of the year-end. Brokers may later handle deductions at source to simplify compliance.
Exemptions	Minimal exemptions: small investors and certain institutions were not specifically protected.	Broader exemptions: • Pension Fund Administrators (PFAs), REITs, NGOs • Small companies with turnover below ₦100 million • Transactions below ₦150 million and total gains under ₦10 million within 12 months.
Reinvestment Incentive	No special incentives for reinvesting gains.	Exemption from CGT if gains are reinvested in another Nigerian company’s shares within 12 months, encouraging long-term market participation

Market Impact

The clarifications provided on the reform aim to improve market confidence in the planned reform, given the uncertainty that was prevailing. The Government, through this reform, is seeking to boost investor confidence, attract new listings, and align Nigeria with peers like South Africa and Kenya, where modern CGT regimes coexist with active equity markets.

By rewarding reinvestment and protecting smaller players, it could deepen market liquidity and strengthen domestic participation ahead of 2026.

Investors are encouraged to consult their brokers and tax advisers early to align portfolios, understand compliance requirements and take advantage of available exemptions and incentives under the new regime. SOURCE: Coronation Economic Flash Note by: CORONATION ASSET MANAGEMENT LIMITED