Capital allowances and deferred tax in Nigeria

How Nigerian capital allowances, claimed instead of depreciation, create temporary differences and deferred tax in a client's financial statements.

By Achekam · 11 October 2026 · 4 min read · For Accountants & audit firms in Nigeria

In a Nigerian client's accounts, a delivery truck is depreciated over its useful life. In the tax computation, the same truck is written off through capital allowances at rates set for tax purposes. The two numbers rarely move together, and the gap between them is where most of a typical company's deferred tax comes from.

For the preparer, the mechanics are familiar. What makes Nigeria worth a closer look is a condition the NRS attaches to capital allowances, which can leave an asset with a very different tax position from what the fixed asset register suggests. This article walks through both, and sets out what the firm works out itself.

Capital allowances replace depreciation for tax

The NRS says capital allowances on qualifying capital expenditure, such as plant, machinery and industrial equipment, are claimed in place of depreciation, at prescribed rates and conditions. Its page on tax incentives and exemptions describes them among the reliefs available to companies.

So in the tax computation, the accounting depreciation charge is added back and the capital allowances are deducted instead. The rates are prescribed by law; read them from the current legislation each year rather than copying last year's computation.

Why the tax base and the carrying amount drift apart

IAS 12 defines temporary differences as differences between the tax base of an asset or liability and its carrying amount in the statement of financial position. It describes the tax base of an asset as the amount attributed to that asset for tax purposes.

For a qualifying asset, the carrying amount falls with depreciation and the tax base falls with capital allowances. Where allowances are claimed faster than depreciation, the tax base is below the carrying amount and a taxable temporary difference arises. Where the opposite happens, the difference is deductible.

IAS 12 requires an entity to recognise a deferred tax liability, or, subject to specified conditions, a deferred tax asset, for all temporary differences, with some exceptions. The deferred tax balance is therefore not a choice; it follows from the asset register and the tax computation once both are right. The general method is set out in deferred tax and temporary differences.

Assets with unpaid VAT or duty

Here is the Nigerian condition. The NRS, in its Information Circular No. 2026/01 published on 29 June 2026, says that where VAT, import duty or a levy is due on qualifying capital expenditure, capital allowance is granted only to the extent that VAT has been charged and the duty or levy paid. Its illustration is a company that did not pay the VAT due on a motor vehicle and so cannot claim capital allowance on it.

PwC's Worldwide Tax Summaries for Nigeria make the same point more broadly: expenses are deductible for income tax, and capital allowances are claimable on qualifying assets, only where VAT and any applicable import duty have been paid.

For deferred tax this matters. An asset on which no allowance can be claimed does not have the tax base its cost would suggest, because the amount attributed to it for tax purposes is affected. Before applying a tax rate to the difference, check whether one of IAS 12's exceptions applies to that asset, and document the conclusion. Do not simply carry the asset's cost into the tax base column.

A worked example in words. A client imports a generator and records it at cost. The import duty was paid, but VAT on the purchase was not charged. The fixed asset register shows the generator; the tax computation, applying the NRS's condition, should show no allowance on it while that remains the position. The deferred tax working must reflect the same position, or it will overstate the tax base and understate any liability.

Building the working beside the asset register

The working needs the same population as the fixed asset register, with three extra columns: the tax written-down value, whether VAT and any duty were paid, and the resulting tax base. Reconcile the opening tax written-down values to last year's computation before adding this year's allowances.

Achekam does not calculate depreciation. It presents the depreciation in the trial balance, flags when the charge does not agree with the accumulated depreciation movement, and lets staff post a year-end adjusting entry; a wrong entry is reversed with who and why, never deleted. That flag is a useful first check: a depreciation charge that does not agree with the movement in accumulated depreciation will distort the carrying amounts the deferred tax working starts from.

Each client's profile also has a Jurisdiction section, and each Nigerian engagement shows its governing basis of regulator, standards, framework, company law and tax authority. Confirm there that the client is on IFRS or IFRS for SMEs before drafting the deferred tax note, as the presentation follows the framework.

What Achekam computes, and what the firm works out

One limit should be stated clearly. As shipped, Achekam computes no Nigerian tax figure, because the tax rules ship awaiting approval by Achekam's platform administrators, and firms cannot approve them. The capital allowance computation, the tax written-down values and the deferred tax working are therefore the firm's own work, prepared outside Achekam's calculators and brought into the statements through the trial balance and adjusting entries.

The tax note that brings current and deferred tax together is covered in the Nigerian tax note: CIT and the development levy.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.