Capital Allowance and Companies Income Tax Act in Nigeria

Abstract

This paper discusses the implications of capital allowances for companies’ income tax purposes in Nigeria. Capital allowance scheme is one of the potentials for improving tax revenue generation in Nigeria. It is a latent value adding mechanism to a business, and a form of based erosion tax sharing (BETS) model that depletes expected tax effect on a business and shifts it to the taxpayer for incurring qualifying expenditure in respect of certain assets. It is an inbuilt expansionary tax fiscal policy that has the capacity to boost economic growth and prosperity. Yet, this scheme over time has been undermined, misused and abused by the relevant quarters. This study tends to rekindle the need and opportunity available in religious implementation of capital allowance regime. It is an investment and industrial output growth; and when it is properly employed, industries will grow to prosperity. In addition to its benefits, it complements the effort of the government in attracting foreign direct investments and to attaining national economic objectives. This paper employs descriptive study and secondary data collection methods to examine the conceptual and regulatory provisions, among other issues concerning the system of capital allowance. Findings from the study confirm that effective implementation of capital allowance scheme can deepen tax compliance culture, increase tax revenue performance and enhance investment in productive non-current assets of companies in Nigeria. Also, it affirms a clear distinction between capital allowance and capital gains tax for companies as well as deducts that there is a reducing effect of different forms of capital allowances on arriving at total profits for company income tax purposes in Nigeria, except for balancing charges. Hence, it is just and reasonable to conclude that a strong and positive connection does exist between capital allowance and tax compliance, tax revenue collection and economic growth and prosperity in Nigeria. Among other recommendations, this paper proposes that management of relevant tax authority should put stringent measures to ensure that all capital allowances claimable are verifiable, justifiable and reasonable as well as meet the regulatory conditions as provided by the extant tax legislations.