TAXATION OF CAPITAL UNDER THE NIGERIA TAX ACT 2025: THE MYTH AND THE FACT

INTRODUCTION

The Nigeria Tax Act 2025 (“NTA”) introduced an updated and modernized framework for the taxation of corporate capital. Two sections – Section 136 and Section 137 – and their corresponding Ninth Schedule now define how share capital and loan capital attract ad valorem[1]) duties.

This briefing note continues in the timely discourse occasioned by the Tax Reform laws which is to take effect on January 1, 2026, specifically the Nigeria Tax Act 2025, its introduced changes on the new rates for stamp duty payment with respect to shares and loan capital, as well as the persons liable to pay duties and its exemptions (if any).

At first glance, it may appear that the scheme seems to treat both alike and in the applicable duty rates. In fact and substance, however, the Act tilts the preferential scale toward debt financing.

DEFINING CAPITAL – SHARE CAPITAL AND LOAN CAPITAL

Before delving into the mechanics of Sections 136 and 137, it is important to be clear about what is meant by share capital and loan capital. They define the two legs of a company’s capital structure and, in turn, determine how the tax law treats the cost of financing.

By virtue of Section 868 of the Companies and Allied Matters Act, 2020 (CAMA), “share capital” means the issued share capital of a company at any given time.” In essence, this is the equity contributed by the owners of the company, that is, the shareholders, in return for participation in the dividends of the business.

By contrast, Section 137(2) of the Nigeria Tax Act 2025 defines loan capital as “any debenture stock, other stock or funded debt by whatever name known or any debt raised by any corporation, company or body of persons formed or established in Nigeria”. The section goes on to exclude:

1.    Overdrafts – a loan that allows a party withdraw more money than the account holds;

2.    short-term loans – loans not exceeding twelve months ; and

3.    loans obtained for onward disbursement to any other person in on-lending arrangements.

For the third exemption which is the on-lending arrangement (a financing agreement where an entity borrows funds to lend to another entity), the beneficiary (final recipient and actual user of the funds) must pay the ad valorem duty, not the intermediary borrower.

THE DUTY ON SHARE CAPITAL – SECTION 136 OF THE NTA

Section 136 provides that “the share capital of a company shall be charged with an ad valorem duty, as specified in the Ninth Schedule to this Act, of the amount of such capital, or increase of capital, as the case may be.”

The Ninth Schedule fixes this rate at 0.75% (₦0.75 per ₦100) on the nominal share capital of a company. The duty arises both on incorporation and whenever capital is increased. No statutory exemptions apply.

It is necessary to mention that the NTA does not make provisions for duty on share capital issued at premium. Therefore, in the event there is issuance of nominal shares at a premium, stamp duty shall be payable on nominal element and not the premium.

THE DUTY ON LOAN CAPITAL — SECTION 137 OF THE NTA

Section 137(1) provides that “the loan capital of a company shall be charged with ad valorem duty, as specified in the Ninth Schedule to this Act.” This section similarly imposes ad valorem duty on ‘loan capital’, as defined in Section 137 (2).

Under the Ninth Schedule, the rate for ordinary loan capital is 0.125% (₦0.125 per ₦100) with the exemptions of overdrafts, short-term loans and on-lending arrangement), while 0.1% applies when existing loan capital is merely converted or consolidated with no exemption.

A COMPARATIVE PRECIS – EQUITY VS DEBT

PRACTICAL IMPLICATIONS

The logic is understandable: governments often tax issuance of share capital as a one-time registry fee. Yet, by keeping the rate on equity at 0.75% and loan capital at a fractional 0.125% or 0.1%, the Act effectively incentivizes leverage. This, however, can have far-reaching implications in the areas of corporate over-leveraging as companies may become too reliant on borrowing and become financially vulnerable. This may also disincentivize equity recapitalization with companies altogether avoiding increasing share capital.  There is also the possibility of this posing narrower capital-market depth as the dearth of companies issuing shares may potentially slow down the growth of the equity market in Nigeria.

CONCLUSION

The Nigeria Tax Act 2025 brings a welcome and modernized framework but preserves an old asymmetry: equity still bears the heavier fiscal load. Section 136, with its 0.75% duty, taxes capital that stays within a company. Section 137, with its 0.125% and 0.1% rates, taxes borrowed funds that must be repaid. Add deductibility of interest, and the system’s preference becomes clear – What is a fact is that Nigeria favours debt over equity. For a country seeking to deepen capital markets and encourage long-term investment, this imbalance is more than a technical peculiarity, it is a policy signal – one that perhaps needs to change.

Please do not treat the foregoing as legal advice as it only represents the public commentary views of the authors. All enquiries on this should please be directed at the authors.