NTA 2025 shifts the tax goalposts for capital-intensive investors

Nigeria’s tax reforms are reshaping investment decisions as the 2025 Nigeria Tax Act (NTA) abolishes the long-standing initial allowance on capital expenditure, removing the upfront tax relief companies typically enjoyed in their first year of major investment.

For new investors, especially those entering capital-intensive sectors, the change means higher early-stage tax liabilities and tighter cash flow at the point of entry.

“This reform does not exactly eliminate capital allowances in practice; what it removes is the lump-sum benefit investors used to enjoy upfront,” Professor Olusegun Vincent, Professor at Pan-Atlantic University and Partner at Goldwyns Advisory Services, said.

“Instead of claiming a large allowance in year one, companies must now spread the deduction equally over the useful life of the asset. So the impact is more of a timing difference than an actual removal,”  Olusegun said.

Under the NTA 2025, capital allowance is now computed strictly on a straight-line basis. The traditional structure, which was initially the Initial Allowance (IA) plus the Annual Allowance (AA), has been abolished. Investors who previously claimed a sizable deduction in the first year will now receive the same total relief, but spread out over a longer period.

The law also introduces a proration rule: Section 27(3) states that capital allowance must be prorated where an asset is only partly used in generating assessable profits, except where non-taxable income constitutes less than 10 percent of a company’s total income.

This lowers the proration threshold from 20 percent under the previous regime, reducing the number of companies subject to restricted capital allowance claims.

The reform affects asset-heavy sectors the most. Industries such as manufacturing, agriculture, mining, telecoms, and oil and gas rely heavily on machinery, industrial equipment, network infrastructure, rigs, and processing facilities, assets with high upfront costs that once attracted substantial first-year relief.

With the initial allowance now abolished, these investors face higher taxable profits in the first year and reduced cash flow at the point of capital deployment.

According to Olusegun, “Investors in non-capital-intensive businesses may not feel any significant impact, but sectors that depend on heavy machinery or technology upgrades will see a noticeable shift in early tax burden.”

 

Under the new regime, annual capital allowance rates are now uniform and categorised: 10 percent for buildings, masts, agricultural assets and heavy transportation; 20 percent for plants, equipment, mining assets, furniture and fittings; and 25 percent for motor vehicles, software and other capital expenditure.

Companies must also retain a 1 percent notional value in their capital allowance schedule until the asset is disposed of, replacing the old N10 bookkeeping rule, but not affecting the total allowance claimable.

Facts from a newsletter titled Tax Education by the Tax Man by Angela Nnamani, head returns payment and process, large tax office, midstream oil and gas office, FIRS, explain that under the old rules, investors could combine initial allowance with annual allowance while also navigating the 66 2/3 percent restriction on how much capital allowance could be claimed each year.

The NTA 2025 eliminates this structure, replacing it with clearer but less front-loaded deductions. Unutilised capital allowances can now be carried forward without restriction until fully used, simplifying compliance but delaying relief for new entrants.

With the abolition of the initial allowance, telecom operators expanding broadband, fibre, and data infrastructure will now face higher tax liabilities in the period of acquisition, as the upfront benefits once tied to major network rollouts disappear.

The Nigerian telecommunications industry recorded N2.9 trillion in capital expenditure in 2024. According to the Nigerian Communications Commission (NCC), a 159 percent increase from the previous year.

Manufacturing firms adopting automation and industrial machinery face a similar shift, as do mining and midstream gas operators with long project timelines and heavy initial investment costs.

According to an Andersen analysis on the reform, the change “particularly impacts capital-intensive businesses, as tax relief on asset purchases will now be spread over time,” though SMEs with limited exempt income may benefit from simplified claims.

The NTA 2025 signals a structural shift in how Nigeria supports capital investment. While total capital allowance remains available across an asset’s useful life, the removal of initial allowance raises first-year tax exposure and could influence investment timing, cash-flow planning, and sectoral expansion strategies.

For new investors, especially in industries where infrastructure and machinery define competitiveness, the reform’s effect is tangible and immediate, reshaping cost profiles at the project inception stage.