The economic growth of a country is the result of the actions of various contributory factors. These factors may be domestic, such as increased trade and other economic activities, or foreign, such as investments by foreigners in a local entity. Foreign investments could take the form of Foreign Portfolio Investment (FPI), which is the purchase of securities or shares of a company on a stock exchange to be held largely for a short to medium term or Foreign Direct Investment (FDI) which involves establishing businesses and associated assets/infrastructure

Nigeria is one of the largest host economies for FDI in Africa and attracts investors in various sectors such as of hydrocarbon, energy, buildings etc. In the past few years, several notable investments have been made in Nigeria through FDI. One of such major investments is the equity injection of US$ 221 million in Lekki Deep Sea Port by China Communications Construction Company out of a planned total investment of US$ 629 million. There have been several such investments recently and according to the United Nations Conference on Trade and Development (UNCTAD) 2021 World Investment Report, FDI flows to Nigeria totaled US$ 2.4 billion in 2020, showing a slight increase of 4.3% from the previous year (US$ 2.3 billion in 2019), despite the global economic crisis triggered by the Covid-19 pandemic.

Over the years, one of the major incentives for foreign (and local) portfolio investments in Nigeria, was the exemption of Capital Gains Tax (CGT) on disposal of such investments. However, in January, 2022, the Federal Government introduced Capital Gains Tax (CGT) on disposal of shares via the Finance Act, 2021. Based on this amendment, investors will, for the first time in over two decades, be liable to CGT on disposal of shares in any Nigerian company where the disposal proceeds, among other stipulations, are more than ₦100 million (One Hundred Million Naira) or the proceeds of investment is not re-invested in the same company or any other Nigerian company.

While the introduction of CGT on disposal of shares has been applauded by some commentators, as it will likely result in increased revenue for the government, amidst Nigeria's increasing debt profile and dwindling public revenue, it has also been criticized by some. On the flip side are concerns that the introduction of CGT on disposal of shares could negatively impact the Nigerian economy, as this may discourage foreign investors due to the additional tax cost.

This Article examines the key changes introduced by the Finance Act, 2021 with respect to CGT, and the likely consequences of introduction of CGT on disposal of shares on the Nigerian economy and our recommendations thereon.

Overview of Changes in the Capital Gains Tax Regime by the Finance Act, 2021

Section 2 of the Finance Act, 2021 amended Section 30 of the Capital Gains Tax Act (CGTA) to subject gains arising on disposal of shares to capital gains tax where the aggregate proceeds (gross amount received) from such disposal exceeds ₦100 million in any 12 consecutive months., irrespective of the accounting period of the company.

However, the CGTA provides a proportionate waiver from CGT where the whole or part of the disposal proceeds are reinvested within the same year of assessment (YOA) in acquiring shares in the same or other Nigerian companies, provided that the portion which is not so utilized will remain subject to CGT. Since the reinvestment period for qualification for share disposal relief is the YOA in which the disposal occurred, any subsequent investments in the shares of the same or another company would qualify so long as they occur within the same YOA.

An exception is also created for transfer of shares between an approved borrower and lender in a regulated securities lending transaction as defined under the Companies Income Tax Act (CITA). Section 32 of the CGTA also provides an exception from the application of CGT in cases of a restructuring between members of a recognized group where one entity has control over the other, provided certain conditions are met.

CGT on Share Disposal of Shares: Implications of Removal of yet another Tax Incentive on Foreign Investments in Nigeria

All over the world, countries strive to attract foreign investments because of the economic benefits and growth prospects that it can provide. FDI and FPI are both important sources of funding for most economies albeit FDI is usually less volatile when compared with FPI.

FDIs, through the establishment of multinational corporations and equity investment in existing entities, could help meet the country's foreign exchange demands, increase profitability, create job opportunities and provide the much needed capital for business expansion. They could also create business competitiveness, knowledge and technology transfer and improve research and development which can boost local productions, amongst others.

Over the years, Nigeria has introduced a number of policies and incentives (including tax incentives) to encourage inflow of FDIs. A notable incentive is the guaranteed unconditional repatriation of investment proceeds out of Nigeria through authorized channels, once a Certificate of Capital Importation (CCI) is obtained at the point of investment.

However, in a bid to improve government revenue from taxation, the Federal Government recently reviewed some tax incentives previously granted to a company with foreign investors in Nigeria. For example, the Finance Act (2019) removed the exemption from payment of minimum tax under CITA granted to any company with a minimum of 25% foreign capital.

Similarly, the introduction of CGT on disposal of shares of a Nigerian company pursuant to the Finance Act 2021 is considered by many as a withdrawal of a major tax incentive, which could have direct implications on FDI in Nigeria. The reasons may not be far-fetched. This is because most FDI investors (including Private Equity firms) when considering whether to operate in a particular jurisdiction would, among other things, factor in exit considerations – such as CGT and any other taxes. Given that Nigeria currently has one of the relatively higher corporate income tax (CIT) rates in the world at 30% (for companies with turnover of more than ₦100 million), plus an additional 2.5% education tax, along with an increasing number of earmarked taxes and high cost of doing business, the recent imposition of CGT on disposal of shares could be a dis-incentive to prospective FDI investors in Nigeria.

An Alternative Way to Introduce CGT on Disposal of Shares in Nigeria?

As Nigeria continues to adjust to the post-pandemic realities, there is an increased need to bolster the economy through foreign investments. The Nigerian government must, through its policies, establish Nigeria as an attractive investment destination to investors. While the availability of adequate infrastructure is one of the factors considered in making investment decisions, fiscal policy is also critical in attracting investment.

Generally, it takes considerable time, skills and efforts for an investment or capital inflow to turn around the fortunes of a new or existing business to achieve increased profitability,

"The Nigerian Government must apply all its creativity in attracting and retaining investments at this time especially with all the local and global challenges which are currently facing Nigeria and other economies. At this time, tax laws should be aimed at attracting more investments, rather than taxing existing or potential ones."

job creation, business expansion etc. Thus, an FDI investor, seeking genuinely to do business in Nigeria, would largely stay with the business for a number of years before deciding to exit – if that is part of the investment plan. This is unlike an FPI investor that would typically cash out within 12 months of investment.

Whilst Nigeria cannot afford, at this crucial time, to leave any money on the table, it is important to also strike a balance between increased revenue in the short term and economic development, which is largely driven by investments. Consequently, it is suggested that the government could consider inclusion of a possible time limit (say 5 years or more) for which shares are to be held before they can enjoy exemption from CGT upon disposal – this exemption would apply to both local and foreign investors and may have additional conditions tied to it. Where an investment is required to be locked in for a minimum period, it will ensure that investments mature and boost the Nigerian economy for that period, while also giving the investor the confidence that whenever they are ready to exit, any capital gains on their investments will not be taxed.

Another option is identify some key sectors of the economy (infrastructure, healthcare, education, manufacturing, ICT, power, mining etc.) and exempt investments into such sectors from CGT on disposal. While there may also be a lock-in period for such investments, it will likely signal these sectors as priority sectors and drive investments into them.

A third option is to provide a threshold for investments that can enjoy exemption, which could stipulate that investments above a certain threshold, which are locked in for a particular period, will be exempt upon exit. This way, we can attract big ticket investments, lock them in for a specified period with all the benefits to the economy and thereafter, allow divestment, without any tax exposure on capital gains. If this is done, it should go a long way in encouraging long term investments and the consequent economic growth in the country.


No doubt, Nigeria has immense potentials to attract both local and foreign investors to boost its economy and the government has a major role to play in creating an enabling business environment, including through creating a conducive business environment and tax incentives to continue to attract and retain foreign capital. A possible opportunity to attract foreign investors whilst also balancing the need to generate more revenue to fund government operations, is to create an exemption from CGT for genuine investors seeking to contribute to the Nigerian economy and who meet certain conditions. While we note that the recent changes provide a window to enjoy an exemption, we are of the view that the threshold of ₦100 million (just about US$ 240,000 at the official exchange rate) may be low for major investors. Likewise the requirement to reinvest proceeds in the same or another Nigerian company within the same year of assessment, seems like a giving an incentive at dawn and taking it away at noon.

It is our conclusion that the Nigerian Government must apply all its creativity in attracting and retaining investments at this time especially with all the local and global challenges which are currently facing Nigeria and other economies. At this time, tax laws should be aimed at attracting more investments, rather than taxing existing or potential ones.

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