Nigeria: Tax implications due to accounting changes | KPMG | GLOBAL
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Nigeria: Tax implications due to accounting changes for leases

Nigeria: Tax implications due to accounting changes

There are potential tax implications in Nigeria of an accounting change with respect to leases.


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The International Accounting Standards Board (IASB) issued the International Financial Reporting Standard (IFRS) 16 on leases. The IFRS will apply to all financial statements prepared for periods beginning on or after 1 January 2019, will replace the existing International Accounting Standard (IAS) 17. 

Tax implications in Nigeria

The implementation of IFRS 16 may not substantially change the manner in which a lessor accounts for leases under the existing IAS 17. Paragraph 18 of Nigeria’s companies’ income tax law contains provisions concerning the tax treatment of leased assets and provides that the lessor is to continue to claim capital allowance at the prescribed rate on assets on an operating lease while the lessee would claim capital allowance on an assets finance lease. The tax law does not define the terms “finance leases” or “operating leases.” It only states that these terms have the same meaning ascribed to them in the relevant accounting standard. Given that IFRS 16 does not change the definition of both terms, it may be easy to conclude that nothing much would change from a tax perspective. However, it is not clear cut. When a lease under the terms of the transaction qualifies as an operating lease, the lessor would continue to claim capital allowance on the asset throughout the duration of the lease. However, under the IFRS, the lessee would have capitalized the same asset, recognised a depreciation expense and an interest expense.


Read an August 2016 report [PDF 203 KB] prepared by the KPMG member firm in Nigeria

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