Nigeria’s transition to a uniform capital allowance system under the Nigeria Tax Act (NTA) 2025 is slowing the pace at which companies recover tax relief on capital expenditure, as deductions are now spread over a longer period rather than granted upfront.
The shift is increasing pressure on early-year cash flows for firms with significant investments in machinery and infrastructure.
Section 27(2) of the Nigeria Tax Act (NTA) provides that only capital expenditure on which VAT or import levies have been paid will qualify for capital allowances, tightening eligibility for deductible assets.
The legislation also abolishes the former system of initial and annual allowances, replacing it with uniform rates of 10 percent, 20 percent, and 25 percent depending on asset classification.
The removal of the 66⅔ percent restriction under the previous regime is one of the key balancing adjustments in the new structure.
Companies are now permitted to fully utilise available capital allowances where sufficient taxable profits exist, removing a constraint that previously limited annual claims despite the availability of deductions.
According to Olamide Sulaiman, a tax consultant, the transitional provisions are designed to prevent duplication of relief while ensuring continuity for existing investments.
“One of the salient changes under the Nigeria Tax Act is the transitional rule for capital allowance, particularly for companies with existing plant assets,” Sulaiman said.
“The transition ensures a smooth shift into the new regime without forfeiting or duplicating capital allowance claims. Taxpayers are only entitled to the remaining number of years required to complete the cycle under the NTA.”
Under the First Schedule of the Act, companies that have already begun claiming capital allowances under the Companies Income Tax Act (CITA) are not required to restart their computation.
Instead, the remaining useful life of the asset is recalculated by deducting the years already claimed from the total allowable period under the new regime.
Firms are also required to maintain a 1 percent notional residual value in their asset registers until disposal, replacing earlier bookkeeping conventions.
The NTA further introduces a proration rule under Section 27(4), which requires capital allowance to be apportioned where an asset is partly used in generating assessable profits.
However, this requirement is waived where non-taxable income is less than 10 percent of total income, easing compliance for companies with minimal exempt income.
Sulaiman noted that while the reform preserves total deductions, it alters cash flow dynamics for businesses already mid-cycle.
“The reform does not change the total relief available,” he said. “However, it spreads the benefit over a longer period, and that has implications for liquidity planning and investment recovery timelines.”
An Andersen analysis of the reform similarly notes that the changes particularly affect capital-intensive businesses, as tax relief on asset purchases is now distributed over time. It adds that while the structure improves compliance clarity, it reduces the immediacy of tax relief previously available under the old system.
The reform has the greatest impact on sectors with heavy reliance on infrastructure and machinery, including manufacturing, oil and gas, telecommunications, mining, and agriculture.
These industries typically depend on early-stage tax relief to offset high capital outlays, and the shift in timing may influence investment sequencing and financing decisions.
Data from the National Bureau of Statistics (NBS) shows that Nigeria’s manufacturing sector, one of the most capital-intensive segments of the economy, continues to face uneven performance amid broader structural pressures.
Nominal GDP growth in the sector stood at 5.80 percent in Q4 2025, down significantly from 13.14 percent in the corresponding period of 2024, reflecting weaker momentum despite quarterly improvements.
The sector’s contribution to GDP also declined to 8.05 percent in 2025 from 8.24 percent in 2024. While these declines stem from multiple factors, the new capital allowance timing compounds the pressure by delaying tax relief precisely when sector margins are already compressed.
For companies with existing plant assets, the transitional framework means capital allowance is no longer reset but extended. This effectively recalibrates tax recovery timelines, ensuring continuity while adjusting expectations around when deductions can be fully realised.
Ultimately, the NTA 2025 represents a shift from accelerated tax relief to a more uniform and administratively simplified system. While firms retain full access to capital allowances, the timing of recovery has changed, increasing the importance of cash flow planning in capital-intensive investment decisions.