In every country, taxes are levied on profits arising from a regular business operation or from a one – off action which may not necessary involved a business activity. In Nigeria, taxes are levied on income from employment business operations and the disposal of capital goods. Legislations such as PITA, CITA and PPTA regulate taxation of income, while CGTA regulates taxation of capital. This unit explains to you, extensively, capital gains tax and draws a clear difference between it and other forms of taxes.


At the end of this unit, you should be able to:

  1.  state the differences between the taxation of income and taxation of capital 
  2.  illustrate the composition of the taxation of income and taxation of capital 
  3.  discuss the similarities between the two forms of taxation 
  4. define capital gains tax, clearly 
  5. explain roll over relief, vividly. 


3.1 Taxation of Income

Income accruing in Nigeria (income producing assets), derived from Nigeria (income producing activities), brought into Nigeria (remittances) and received in Nigeria (emoluments) are all subject to income tax. Income tax is payable on income from a source inside or outside Nigeria and in particular, but not restricted to the following: (a) profit or gains from a trade, business, profession or vocation; (b) remunerations from and employment which may be salary, wage, fees, allowances or gains from employment; including compensations, commissions, bonuses, premiums or benefits in

Individuals and companies alike are assessed on any taxable incomes they received or earned. For individuals, graduated tax rates are used in assessing them, while companies/corporate organisations are assessed using fixed and uniform rates as determined by the relevant legislation or the tax policy prevailing in that period. Taxation of income has been discussed in subsequent units.


What are the legislations that govern the taxation of income in Nigeria?

3.2 Taxation of Capital

Basically, taxation of capital gains arises from the disposal of assets by both private and business entities. It was introduced in Nigeria through the capital gains tax act, Cap 42, LFN, 1990. Capital gains tax is charged on the proceeds of assets disposed of by a taxpayer. It is remarkable that while taxation of income had been a permanent feature of the English tax system
since 1799, capital gains were not introduced until 1962. Even then, the tax was introduced solely for the limited purpose of levying speculative gains. A comprehensive version of capital gains tax was instituted in the United Kingdom only in 1965. One would have suggested that the decision to tax capital gains could have been implemented by integrating such gains into the mainstream of taxable income.

3.2.1 The Structure of Capital Gains Tax (CGT)

The tax aims at all gains accruing to any person upon the disposal of assets in the year of assessment. Such gains are determined by deducting from the proceeds of the disposal, certain specified sums. That is, the amount or value of the consideration laid out to acquire the asset, incidental costs of the acquisition, cost of improvements to the property, any amount incurred in establishing, preserving or defending the disposer’s title to or right over the asset and incidental costs of the disposal. However, any sum which is ordinarily allowable as a deduction in computing the profits of a trade or business, profession or vocation for the purpose of income tax, may not be deducted in the computation of capital gains.

3.2.2 Assets Subject to Capital Gains Tax (CGT)

As has been obvious by the foregoing discussions, the subject matter of the tax is assets. Under the act, all forms of property, except those expressly excluded, are deemed to be assessable. Specific examples of assets given by the act include options, debts and incorporeal property (assets) generally; any currency other than Nigerian currency; any form of property created by the person disposing off it, or otherwise, coming to be owned without being acquired; and stocks and shares of every description. Until recently, it did not matter whether the assets were situated in Nigeria or not (CGTA, Section 3). Gains on foreign assets are chargeable in Nigeria if any part of such gains are brought into or received in Nigeria.

3.2.3 Capital Taxation Versus Income Taxation

From the description of assets, one may wonder where to draw the dividing line between incomes which are taxable under the PITA and CITA on the one hand, and capital gains intended to be taxed under CGTA on the other hand. Under the CGT act, a possible guide is the reference to the receipt of a capital sum as a condition precedent to capital gains tax liability. However, there is no helpful definition of a capital sum in the act. Section 6(2) defines it vividly as any money’s worth which is not excluded from the consideration taken into account in the computation of chargeable gains.

Unfortunately, one cannot take the general view that only the disposal of capital assets gives rise to the receipt of a capital sum. Apart from the customary dilemma of distinguishing capital from other assets, the act itself clearly contemplates the possibility of capital gains arising from the disposal of all forms of property, including tangible moveable properties. To be on a safe side, one can only summarise, albeit vaguely, that no recurrent gains, especially those that result from the disposal (not exploitation) of capital assets will be regarded as capital gains.

What amounts to a disposal? Disposal is itself a term capable of very wide definition. Under section 6 of the act, it includes a sale, lease, transfer, assignment and compulsory acquisition, but it does not include a gift. Also, a disposal occurs where any capital sum is received in return for feature or surrender of rights, or for reframing from exercising rights; and where any capital sum is received as consideration for use or exploitation of any asset. Hence, a disposal may be said to have taken place even where the person paying the capital sum thereby acquires no asset.

Disposal of assets also includes a part disposal. However, a conveyance or transfer by way of security of an asset and the subsequent retransfer on redemption of the security are, specifically, exempted. Similarly disregarded are cases where the disposal is from a deceased person to his personal representative or from the personal representative to a legatee. Gains made upon a compulsory acquisition of land by the government are also exempted.

3.2.4 Definition of Capital Gains

Capital Gains is defined as gains resulting from increases in the market value of assets to a person who does not regularly offer them for sale and in whose hands they do not constitute stock – in trade. These gains may be “paper” or realised gains. The gains are “paper gains” where the asset appreciate in the hands of the owner, and are “realised gains” when the assets are sold or disposed of.

Example of assets that usually give rise to capital gains are; stocks, shares, securities, land and buildings, plant and machinery and other business assets such as goodwill. Conditions for assessing capital gains to tax, according to Ayua (1999), include the following.

(a) There must be a person changeable to tax;
(b) There must be a chargeable asset which gives rise to a chargeable gain upon disposal; and
(c) There must be a disposal of the asset by the person changeable to tax.

3.2.5 Capital Gains Tax

CGTA provides for the taxation of capital gains accruing on disposal of assets. The rate of capital gains tax, which was formerly 20%, has been amended to 10% through decree No 18 of 1998. The tax is administered by the FBIR in respect of individuals resident in the FCT and corporate bodies; while the tax is administered by the SBIR in respect of individuals, based on their residential status.

3.2.6 Chargeable Assets

The following forms of property shall be assets which the proceeds from their disposal are subject to capital gains tax under the act. These assets may or may not be situated in Nigeria.

  1.  Options, debts and incorporeal property. Incorporeal properties are assets that have values but are not tangible e.g. goodwill, copyrights and patents. Where the assets of a debtor are acquired in exchange for a debt owed and such assets are subsequently disposed, capital gains are deemed to have arisen; 
  2.  Any currency other than Nigerian currency; 
  3. All qualifying capital expenditure under CITA, PITA, PPTA, or any form of property created by the person disposing it of, or otherwise coming to be owned without being acquired; 
  4. Stocks and shares of every description. This was, however, repealed by decree No 19 of 1998 in other to accelerate the development of capital market. 

3.2.7 Allowable & Disallowable Expenditure

Allowable deductions (section 14)
These cover the following

  1. Cost of acquisition or purchase price, including all costs incidental to the purchase and necessary costs incidental to the disposal; 
  2. Improvement costs wholly, exclusively and necessarily incurred; 
  3. Costs wholly, exclusively and necessarily incurred in establishing, preserving or defending the owner’s title to or a right over the asset. 

Disallowable deductions (section 15)

Sums allowable as a deduction in computing the profit or gains or losses of a trade for income purposes are not allowable deductions under section 14 above. Insurance premiums on the asset are also not allowable (section 16).

3.2.8 Determination of Consideration

Normally, the amount indicated as capital gain in the tax returns of the taxpayer will be accepted as the basis of assessment, but the act envisages various situations in which the taxpayer might not be able to state the consideration accurately, or in which his statement would be held suspect. For instance, where a single bargain comprises two or more transactions whereby assets are disposed of, those transactions are to be treated as a single disposal for the purposes of computing capital gains. Also, disposals would, in certain circumstances, be deemed to be for a consideration equal to the market value of the asset.

Examples include cases in which the disposal is not by way of a bargain made at arm’s length and those in which the disposal is wholly or partly for a consideration that cannot be valued. The first part of the foregoing provision suggests that a disposal of property free of charge is deemed to be a disposal at market value and, therefore, that a donor of property may be made liable to capital gains tax.

3.2.9 Exemptions and Relieves

As is usual with other tax statutes, gains of ecclesiastical, charitable or educational institutions and statutory and diplomatic bodies are exempted. Where trustees or nominees transfer assets to beneficiaries, they are not considered to be disposing of the assets; hence, the transaction does not attract capital gains tax. For gains which are also liable to be taxed abroad, the double taxation relief provision of the income tax management act applies.

Other exemptions include gains made upon a disposal of business assets where the proceed are spent in acquiring new business assets; gains made upon the disposal of an interest in, the rights under any policy of assurance or contract for deferred annuity on the life of any person; sums obtained by way of compensation or damages for any wrong or injury suffered by an individual; and gains made upon the disposal of a house. Another important relief is one granted to businessmen or trade under section 32(1), where old business assets are sold and the proceeds are used to procure new and similar business assets. In that case, no gain will be considered to have occurred.

3.2.10 Part Disposal of Assets

Where a part of a whole asset is disposed of within the purview of section 6(2)(b), the sums representing the amount or value of the consideration for the acquisition of the asset referred to as cost of acquiring the assets, together with any amount of expenditure wholly, exclusively and necessarily incurred on the asset for the purpose of enhancing the value of the asset as are attributable to the asset shall- both for the purposes of computation under the act and in relation to the property which are not disposed of, be apportioned. 

This may be represented as follows-

Cost of Partial Disposal = A x C
Where A = Sales proceeds of the part disposed of;
B = Market value of the part not disposed of;
C = Cost of acquisition of the whole asset. 

Illustration 1

Sele Ltd. purchased a set of generating plants at a cost of N24, 000 on 1st

April, 2006. Part of the plants was sold on 31st December 2009 for N7, 500. The company incurred N1, 500 as expenses incidental to the sale. The market value of remaining plants was N25, 000 on 31st December, 2009.

What is:

 (i) the chargeable gain, if any, on the asset sold;
(ii) the new cost of the remaining asset.

Suggested solution to illustration 1

(i) Chargeable Gain

Sales proceeds 7,500
Less cost of sale 1,500
Less cost of partial disposal 5,538
(7,500 x 24,000)
7500 +25000 1

Chargeable gain = 462

(ii) Cost of the remaining asset

24,000 – 5,538 = 18,462

3.2.11 Computation of Capital Gains

In the computation of any chargeable gain, such as may be chargeable to tax shall be the difference between the consideration accruing to any person on the disposal of the asset and any sum to be excluded from that consideration; and there shall be added to that sum the amount of the value of expenditure allowable to such person on such disposal. This can be represented as shown below.


Consideration (sales proceeds) xx
Less: Cost of acquisition xx
Allowable expenditure xx xx
Chargeable gains xx

Therefore, chargeable tax will be 10% of chargeable gains

Exclusion of losses

In the computation of chargeable gains, the amount of any loss, which accrues to a person on a disposal of any asset, shall not be deductible from gains accruing to such person on the disposal of such an asset.

3.2.13 Roll over Relief

Where a company, carrying on a trade or business, obtains a consideration on the disposal of eligible assets used in the business and applies such consideration in acquiring new assets of the same class as the old ones which are to be used solely for the business, a roll over relief is granted. The company will be entitled to deduct the gains arising on disposal from the cost of the new assets.

Full relief is obtained only when total consideration for the sale of the old asset is applied in the acquisition of the new asset or assets of the same class. It further states that where the amount re-invested in an asset  of the same class as that sold is less than the full sales proceeds, the chargeable gain that should be rolled over (that is, allowed as a deduction from the cost of the new asset) will be limited to so much of the chargeable gain so re-invested.

The effect of this roll over relief is to reduce the cost of acquisition of a new asset with the resulting increase in the capital gains arising on eventual disposal of the second asset. There will be a partial roll over relief where the amount re-invested on the new asset is more than the cost of the old asset, but not up to the sales proceeds of the old asset. More importantly, there will be no roll over relief when the amount re- invested in the new asset is not up to the cost of the old asset.

This roll over relief is by way of deferral of tax liability to some future dates when the asset newly acquired is eventually disposed. It is however, available only for the following classes of assets.

(a) Any land & building of a permanent or semi-permanent nature occupied and used for trading purposes;
(b) Any plant & machinery, ships, aircraft or goodwill.

The consideration arising on disposal must be re-invested within twelve months before or after disposal before the roll over relief can be granted. 


  1. Define capital gains tax in your own words. 
  2. What is the structure of capital gains tax in Nigeria? 
  3. Jat Ltd. purchased a plants a cost of N120, 000 1st setofaton April, 2006. Part of the plants was sold on 31st December, 2009 for N35, 000. The company incurred N7, 500 as expenses incidental to the sale. The market value of remaining plants was on31st December, 2009. N125, 000 

What is:
(i) the chargeable gain (if any) on the asset sold?
(ii) the new cost of the remaining asset?


This unit has focused more on taxation of capital. It is pertinent for you to acquaint yourself with the basic principles for computing capital gains, noting all the variables necessary for computing chargeable incomes from a trade, business, profession or vocation.


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