Academic journal article Canadian Social Science

Capital Gains Tan in Nigeria

Academic journal article Canadian Social Science

Capital Gains Tan in Nigeria

Article excerpt


Tax is a compulsory levy imposed by the government on the incomes of taxpayers in order to pay the expenses of governance. Capital Gains Tax is a form of tax chargeable on capital gains arising from the disposal of chargeable assets. This paper examines the nature and the justification for Capital Gain Tax as a lucrative ground for raising revenue for development especially in the developing countries. In Nigeria, Capital Gain Tax is yet to yield the desired result in terms of raising revenue for the government. Our theoretical work on this subject explain reasons which includes lack of awareness, inadequate data and the high rate of inflation which has led to high incidence of avoidance of Capital Gain Tax. Arguments against capital gain tax in Nigeria are examined as well as issues, suggestions and recommendations for the effectiveness of this form of taxation. This paper recommends more aggressive awareness campaign, reduction of tax rate and even a merger of capital gain with income tax to reduce cost of collection.

Key words: Capital Gains Tax; Government; Nigeria


Taxation has been with man. Apart from revenue to the government, taxation is important to all, taxes collected come back to the taxpayers in the form of social amenities (Ola, 2001).

In recent times, taxation is an economic tool that can be used to steer the economy in order to achieve a particular micro or macro economic growth. In developing countries for example, this economic tool for development may be through tax concessions to newly established firms starting new activities (Shah & Toye, 2004). The rationale for such fiscal concessions should be aimed at encouraging private investment in selected economic activities, promoting regional development or creating employment opportunities. The tax policies can be used to attract foreign investments as foreign investors weigh the effects on their total after tax profits of allocating the capital available to them among different countries. Accordingly, they would prefer to invest in countries with low tax rates (Ali, 1999).

There are many types of taxes that are often levied on individual and corporate entities. Capital gain tax is on income derived from the sale of a capital asset. This paper will examine the concept of tax, reasons for taxation, features of a good tax system, nature, arguments against Capital Gain Tax and recommendations for effectiveness of this form of taxation.


In carrying out this research we adopted a theoretical framework by looking at other literatures on the subject as basis for our findings and recommendations.

Meaning of Tax

Failure of the Nigerian tax laws to define the term tax has left much to be desired. Recourse shall be to judicial pronouncements and opinion of scholars as to its meaning. Tax is a monetary charge imposed by the government on persons, entities, transactions, or property to yield public revenue. . ., the term embraces all governmental imposition on the person, property to yield public revenue... The term embraces all government occupations, and enjoyment duties, import and excises (Blacks, 2004).

Cooley (1924) defined tax as the enforced proportional contributions from persons and property, levied by the sovereignty for the support of government and for all public needs.

Cooley's definition has been endorsed expressly or otherwise by many different courts. Cooley's definitions characterize taxes as contributions but many other definitions refer to them as impost, charges, burdens, or exactions.

Although Cooley's idea of enforcement and levy as attribute of tax agrees with judicial and academic definition of tax, his notion of contribution seems controversial. A close look at other definitions buttresses this point. In U.S. V Butler Roberts', tax is defined as an exaction for the purpose of Government. Similarly, Latham C. …

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