The History of Capital Gains Tax in Nigeria

Capital Gains Tax could be said to have begun when the finances of the Federal Government of Nigeria was under severe pressure as a result of the military and political crisis occasioned by the Civil War in Nigeria, Capital Gain Tax was introduced by the promulgation of Decree No. 44 known as The Capital Gain Tax Decree 1967 on the 19th day of October 1967 1. In Nigeria, as at 1967 when the imposition of the tax started civil war was ripe in Nigeria and so the need for funds was in high demand and this was one of the main reasons for the imposition of capital gain tax.

Capital gain tax is the taxation levied on Capital Gains: “A capital gains is simply an increase in the value of a capital asset that gives it a higher value than the actual purchase price” 2. You don’t usually realize the gain until the asset or investment is sold. So, say I have a land for over ten years then sell it the difference when I first had it and the price I sold is the capital gain.

Capital Gains is the excess proceeds of the sale of assets such as land, building, stocks, any currency other than the Nigerian currency, copyrights, bonds and qualifying machinery and equipment etc. over the original cost of that asset 3.

Not all countries impose a tax on capital gains, some countries like Switzerland, Singapore, Malaysia, New Zealand and some others don’t impose a capital gain tax. The reasons and objectives for imposing Capital Gains tax could be linked with some of the reasons for imposing a tax in general as was identified by J.L Hanson. Some of which are: to generate revenue to meet government expenditure; to redistribute inequality of incomes this is achieved by progressive income tax.

For instance, Whiteman and Milne (1973) said: “capital gains tax was not introduced with the main objective of raising revenue”. In the UK the 1965 Budget Speech of Mr Callaghan, the Lord Chancellor said Capital gain tax was and would be ‘one of the greatest steps in Tax Reform as a form of equity and social justice’.

Another reason was identified by C.S. Ola 4 is that of equity, revenue and economic growth. Who saw it as the following of the footsteps of UK who had introduced Capital Gains Tax in 1965 and barely two years after it was introduced into Nigeria in 1967 5. Capital Gains started with the Capital Gains Tax Decree of 1967. The rate was first fixed at 20% as was provided for by Section 2(1) of the Decree however there was a revision in 1998 to 10%.

Capital Gains has its exemptions and shall in accordance to Section 27, shall not be chargeable to: a charitable, ecclesiastical or educational institution of a public charter; any trade union registered under the Trade Union Act; any cooperative society registered under The Cooperative Society Act.

The management of Capital Gains Tax has been placed under the administration of the Federal Board of Inland Revenue. It is shared between Federal Board of Inland Revenue (for companies) and State Inland Revenue Department (for individuals).

“Section 5 of the Decree excludes the amount of any loss which accrues to a person on the disposal of an asset. This provision negates the principle of fairness or social justice as between the taxpayer and the government. The government should be able to share in the capital gains as it did the capital losses”.6

Section 37 of the Decree is an exemption which was designed to cover a situation where persons carrying a business disposes of an asset and utilizes the proceeds of the sale to acquire a new and similar business asset for the same purposes of the asset. This concept is referred to by the administrators and as “ROLLOVER This concept has been a constant source of evading capital gains tax in Nigeria. A case dealing with capital gains tax could be seen in Hoare Trustees V. Gardner (Inspector of Taxes). 7

Capital Gains Tax might have started in Lagos but has now spread to the whole Federation and it is now a well-established tax in which most countries impose on their citizens.



1. The decree had retrospective effect having been deemed operational since 1st of April 1967.2. Miedejohnson Tax Club OAU 3. By A.K IBIGBAMI “An Assessment of Capital Gains Tax” 4. C.S Ola “Income Tax Law for Corporate and Unincorporated Bodies in Nigeria” 5. However, there has been other amendments like: Decree No. 47 of 1972; Decree No. 15 of 1976, No.45 of 1999 and now Capital Gains Tax Act CAP C1 LFN 2004 6. Capital losses by A.K IBIGAMI: Tax Law and Tax Administration in Nigeria; Lagos Nigerian Institute of Advanced Legal Studies 19917. (1978)STC 89.