The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital… the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy”. John F. Kennedy
Capital Gains Tax (CGT) is a tax on the profit obtained from disposal or exchange of certain kinds of assets. In Nigeria, Capital Gains Tax is charged at a flat rate of 10% of chargeable gains. It is governed by Capital Gains Tax Act, Cap CI LFN 2004 (as amended). All chargeable assets are subject to Capital Gains Tax when disposed at a gain, except those specifically exempted by the Act. This includes disposal on decorations awarded for valour and gallant conduct, life insurance policy, Nigerian government securities, stock and shares, etc.
Allowable expenditure for the purpose of CGT comprises of but not limited to fees, commissions or remunerations paid for professional services, as well as cost of transfer.
Capital gains might emerge in two instances, in any case, where the asset appreciate while still in the hands of the owner or possibly, he realized gains when the assets are sold or disposed off. Capital gains tax are payable on shares, stock, land, structures, securities, machines, etc.
Capital gains tax has been legitimized on the ground that capital gain on assets expands an individual or individual’s taxable capacity by increasing his ability to spend or save. Capital gains are not circulated among the various individuals from the tax paying community in fair proportion to their taxable incomes but are concentrated in the hands of property owners.
Chargeable Persons, Chargeable Assets And Disposal Of Assets
By Section 46(2) of the Capital Gains Tax Act (CGTA), a chargeable person include[i]–
- any company or other body corporate established by or under any law in force in Nigeria or elsewhere; or
- a person to whom the Personal Income Tax Act applies
to whom chargeable gains accrue.
Section 3 of the Capital Gains Tax Act (CGTA) provides that all forms of property (Subject to any exceptions provided) shall be assets for the purposes of capital gains tax, whether situated in Nigeria or not, including[ii];
- options, debts and incorporeal property generally;
- any currency other than Nigerian currency; and
- any form of property created by the person disposing of it, or otherwise coming to be owned without being acquired.
The property must be an asset in respect to which qualifying expenditure had been incurred under the relevant Schedule to the Personal Income Tax Act (PITA), Companies Income Tax Act (CITA) and the Petroleum Profits Tax Act (PPTA)).
Section 6 of the Capital Gains Tax Act (CGTA), provides that there is a disposal of assets by a person, where any capital sum is derived from a sale, lease, transfer, an assignment, a compulsory acquisition or any other disposition of assets, notwithstanding that no asset is acquired by the person paying the capital sum, and in particular[iii] –
- where a capital sum is derived by way of compensation for any loss of office or employment;
- where any capital sum is received under a policy of insurance and the risk of any kind of damage or injury to, or the loss or depreciation of assets;
- where any capital sum is received in return for forfeiture or surrender of rights, or for refraining from exercising rights;
- where any capital sum is received as consideration for use of exploitation of any asset; and
- where a capital sum is received in connection with or arises by virtue of any trade, business, profession or vocation.
By virtue of section 26 of the Capital Gains Tax Act applicable in Nigeria some capital gains are exempted from taxation.[iv]
- Ecclesiastical, charitable or educational institutions of a public character;
- Any statutory or registered friendly society;
- Any co-operative society registered under the cooperative societies Law of any state; or
- Any trade union registered under the Trade Union Act, in so far as the gain is not derived from any disposal of any assets acquired in connection with any trade or business carried on by the institution or society and the gain is applied purely for the purpose of the institution or society.
It is important to note that Capital Gains Tax accrues on an actual year basis with a due date for filing its returns and payment of the tax being the same as that of Company Income Tax.
Taxaide Professional Services Ltd (Taxaide) deploys different tools to help taxpayers and administrators pursue streamlined, discreet, transparent, and efficient tax functions that skilfully addresses tax management and administration issues. This leaves room for efforts to be directed at more strategic concerns. Our tax management framework explores several dimensions to ensure every tax decision results in value creation in as many possible ways.
We work with the organisational model, policies, processes, and technologies that are available; we are that dynamic. We explore, assess, prioritize, and implement improvement opportunities; we are that objective. At the end, we always arrive at process efficiency, cost /time saving and more effective resource allocation, generally. With us, your benefits include having additional time on your hands for greater value creation. We take care of the tax-related headaches that would not have allowed the sustainable health of your economic unit.
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[i][i] FIRS Circular
[ii] FIRS Circular
[iii] FIRS Circular
[iv] Obaje Enemaku Esq (2012). Capital Gains Tax in Nigeria. Canadian Social Science