Taiwo Oyedele, Chairman, Presidential Fiscal Policy and Tax Reforms Committee, is providing clarity on the Capital Gains Tax and hoping to restore investor confidence after the steepest decline in Nigerian stocks in 15 years.
Oyedele, yesterday issued a tweet clarifying the implementation framework for the new Capital Gains Tax (CGT) regime, bringing much-needed clarity to the market.
Prior to the clarification, a dominant concern was that the new CGT would be applied on a historical-cost basis, suggesting that gains accumulated over the years, even before the new law took effect, would be subject to the new CGT upon disposal.
However, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee made significant clarifications on the implementation of the new CGT, as detailed in the key highlights below:
Key insights
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Grandfathering and cost base reset
- Gains accruing up to December 31, 2025, will be taxed at the current 10% CGT rate upon disposal, regardless of when the disposal happens. This clarification is likely to bring significant relief to the market, as it removes the urgency to realise accrued gains on assets before the end of the year.
- The cost base for existing investments will be reset for future tax computations to the higher of the actual acquisition cost or the closing market price as of December 31, 2025. This critical change effectively puts to rest concerns about historical cost base, as it relates to the implementation of the new CGT.
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Tax rate and scope:
- The exemption threshold remains for disposals where total sales proceeds do not exceed N150 million and total gains do not exceed N10 million within 12 months.
- Institutional investors (such as Pension Fund Administrators (PFAs), Real Estate Investment Trusts (REITs), and Non-Governmental Organisations (NGOs)), which enjoy Corporate Income Tax (CIT) exemption, will similarly be exempt from CGT.
- Taxable gains are subject to certain deductions, including realised capital losses from share disposals, transaction charges, expenses such as margin interest, and realised foreign exchange losses incidental to the investment. Foreign exchange gains will also be treated as taxable income.
- Capital gains from foreign share disposals that are repatriated into Nigeria through CBN-authorised channels are also exempt from the CGT.
Market impact
- For listed equities, the clarification removes an overhang of uncertainty that had contributed to the recent volatility and flight to safety. The clarification on applicable cost basis should also potentially bring some relief for institutional investors (e.g. PE firms) who were under pressure to exit investments before the new tax law becomes effective. This creates legroom for significant market recovery in sound fundamental stocks that were hit by the recent market panic.
- It reinforces Nigeria’s commitment to transparent and fair fiscal reform, which should bolster investor trust. This point is particularly useful as investors now view the administration as pro-market and proactive.
- Importantly, the sound fundamental stories of many coverage companies remain intact. Valuations across key counters remain compelling, supported by a more stable FX environment, declining inflation and yields, and recovering consumer and corporate demand. The recent pullback is therefore likely to be looked upon as one of the most important entry opportunities into fundamentally sound stocks in the second half of 2025.
Bottom-line
It remains to be seen if this will sway wary investors who want the whole CGT hikes scrapped.
As for Oyedele, we wonder why it took seeing red on the NGX that wiped out trillions of naira in value, for him to wake up and address the market concerns.
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