Economists Warn Higher Capital Gains Tax May Deter Foreign Investors

Economic experts have cautioned that the Federal Government’s decision to raise Capital Gains Tax (CGT) from 10 per cent to 30 per cent could discourage foreign investment and slow down activity in Nigeria’s equity market.

The tax adjustment, part of sweeping reforms under the newly signed Nigeria Tax Act, Nigeria Tax Administration Act, and Nigeria Revenue Service Act, will take effect from January 1, 2026. The reforms are aimed at simplifying the tax structure, expanding the revenue base, and promoting economic sustainability.

Under the new framework, corporate capital gains will be taxed at 30 per cent, aligning with the Companies Income Tax rate, while individual capital gains will attract taxes based on their respective income brackets.

Speaking with The PUNCH, Charles Sanni, Chief Executive Officer of Cowry Treasurers Limited, warned that the increase could make Nigeria less appealing to investors when compared with other emerging markets.

“The first thing to note is that a higher capital gains tax directly reduces the returns investors take home,” Sanni said.
“That, in turn, affects profit margins and could make the Nigerian market less competitive. We might see investors shifting focus to other countries with friendlier tax regimes.”

Sanni noted that while Nigeria’s macroeconomic indicators are gradually stabilising, the tax hike could still trigger reduced market participation, particularly among foreign investors.

“Even with improving fundamentals, this policy might lead to a pullback in equity investments. Given Nigeria’s influence in Africa’s financial landscape, there’s also the risk that neighbouring countries could adopt similar measures,” he added.

He further warned that the change could have wider economic implications, including reduced capital inflows, pressure on foreign reserves, and higher borrowing costs for listed companies.

“The immediate impact will likely be reduced appetite for Nigerian equities, especially from foreign investors. This could translate into lower foreign reserves and a higher cost of capital for companies,” he said.

However, Sanni acknowledged that the government’s decision was driven by the need to shore up revenue amid fiscal constraints.

“This is not a corporate income tax; it’s a capital gains tax aimed at boosting government earnings. If managed properly and the proceeds are reinvested productively, the long-term effect might still be positive,” he explained.

Similarly, Professor Akpan Ekpo, a former Director at the Central Bank of Nigeria and the West African Institute for Financial and Economic Management, described the new rate as steep but understandable from a fiscal policy perspective.

“The 30 per cent rate is quite high and will likely discourage some investors,” Ekpo said. “But I understand that government wants to generate more revenue, especially from wealthy individuals and large corporations.”

Ekpo noted that while the policy could potentially yield up to ₦1 trillion in additional revenue, its success depends largely on how efficiently the funds are managed.

“Projections suggest this could generate as much as ₦1 trillion. That’s a big figure, but it will only matter if the funds are used judiciously,” he added.

He also stressed the importance of directing tax proceeds toward essential sectors such as health, education, and housing, arguing that a broader tax base is beneficial if the benefits are felt across society.

“Expanding the tax base isn’t a bad thing, especially when high-income earners contribute more,” Ekpo said.
“My only hope is that the money raised is channelled into sectors that directly improve people’s lives. If well managed, the long-term gains could outweigh the short-term drawbacks.”