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.

Related content

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

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal



KPMG's new digital platform

KPMG's new digital platform