The Nigeria Tax Reform and Its Implications for Real Estate Transactions and Valuation Practice

By ESV Ayoola Adeeko Olaleye

Introduction

The tax reform of 2025 in Nigeria is one of the most significant changes in the fiscal system of the country in decades. The reform is aimed at making the tax system simpler, harmonised, and stronger to increase revenue collection and economic performance. These reforms have critical implications on the real estate industry, especially since it is one of the most taxed and heavily regulated investment classes.

Taxation is closely connected with real estate transactions at all levels, i.e. acquisition and development, leasing and disposal. Thus, Estate Surveyors and Valuers should have an understanding of how the new rules will impact on property values, transaction structures, and valuation methodologies.

Overview of the 2025 Tax Reform
The Nigeria Tax Reform brings together several tax laws that were in existence into one comprehensive framework commonly referred to as the Nigeria Tax Act (NTA) alongside updates to related laws. Key highlights include:

1. Capital Gains Tax (CGT): The reforms will increase corporate CGT rates (reportedly up to 30%) and harmonise some gains with ordinary income. It also extends coverage to indirect transfers i.e. share transactions that transfer property ownership.
2. Value Added Tax (VAT): Explanation is given on the applicability of VAT to residential and commercial deals. Sales and rent of residential property might be exempted, but VAT is imposed on commercial leases and on commercial construction services.
3. Stamp Duties: Collection and enforcement of stamp duties are simplified, and the digital documentation and consolidated reporting are subject to federal control.
4. Tax Administration and Compliance: The reform empowers tax authorities, provides a better reporting framework, and focuses on real estate and corporate transactions.

Implications for Real Estate Transactions

1. Increased transaction expenses.
   The increase in CGT rates, tighter application of VAT and compulsory stamp duties ill lead to an increase in the total cost of transferring property. This can affect the outcomes of negotiations, as buyers will insist on price cuts to cover the taxation costs.
2. Shifts in Deal Structuring
   Parties will tend to seek more tax-efficient systems, such as Real Estate Investment Trusts (REITs), joint ventures or deferred transfers as a way of reducing exposure. However, the reform’s recognition of indirect transfers limits avoidance through offshore or corporate layers.
3. Changing Market Evidence
   There could be short-term distortions in the market due to tax-related costs and compliance. There is the likelihood of some investors delaying transactions temporarily, resulting in less comparables and possible downward pressure on transaction prices, directly impacting the valuation indicators.
4. Improved Documentation and Due Diligence.
   Before closing transactions, Estate Surveyors and Valuers have to ensure that properties have been tax cleared, and confirm cost bases as well as previous payments. The history of taxes on a property has now become an important part of due diligence, not only on marketability but also on valuation.

Implications for Valuation Practice
Valuation of real estate relies on proper depiction of market realities, and the taxation factor has become a more significant part of market realities. Every valuation method should consequently incorporate tax implications:

1. Sales Comparison Approach
   For a fair comparison, it is vital to adjust the data from other tax regimes so that they reflect what they would look like under the same tax conditions. An example is that a sale made with a lower CGT regime should not be directly compared to an existing transaction with higher taxes without adjustments.
2. Income or Discounted Cash Flow (DCF) Approach.
   Use after-tax cash-flow modelling. Valuers should model:

• Rental revenue (which excludes VAT where applicable)
• Permitted expenditures and corporate tax rates.
• Expected CGT upon disposal
  This is the best method to show the actual investor yield, reflecting the taxes paid during the holding period and at exit.

1. Cost Approach
   Under the cost method, relevant VAT on construction materials and anticipated taxes on subsequent disposal are to be factored into the cost and profit system of the developer.
2. Reporting and Disclosure
   A section should be included in valuation reports to cover Tax Assumptions. Disclose assumed CGT and VAT rates, rent treatment and tax-timing assumptions. Such openness increases trust and helps clients to make effective choices.

Illustrative Example
A company Vendor sells a property at N100m and acquired at N60m.

• Under the old 10 % CGT regime:
  CGT = N4million – Net proceeds = N96million.
• Under the new 30 % CGT regime:
  CGT = N12million – Net proceeds = N88million.

The seller also gets N8million less, which is the price of the goods discounted by 8.33% of the net proceeds, which is the increased CGT. This has a direct effect on the pricing in the market, and the readiness of investors to pay.

Key Professional Risks

• Unverified Cost Bases: Unclear acquisition costs can result in incorrect CGT calculations.
• Unexpected VAT/Withholding Liabilities: The misclassification of property use may give rise to unexpected assessments.
• Indirect Transfer Exposure: Valuers should determine ownership structures that may likely give rise to tax liabilities.

Practical Procedures for Estate Surveyors and Valuers

1. Update Valuation Templates to include tax assumptions and after-tax cash flow analyses.
2. Request tax documents (tax clearance certificates and proof of previous CGT/VAT payments) from clients.
3. Carry out sensitivity analyses of valuation under different tax scenarios.
4. Work with tax experts so as to interpret and advise clients appropriately.
5. Educate personnel and other associates on the new laws and how to apply them.
6. Keep track of the regulatory changes by the Federal Inland Revenue Service (FIRS) or its successors to get specific information on implementation.

Conclusion
The Nigeria Tax Reform 2025 is both a challenge and an opportunity to the real-estate profession. Although it will add to compliance costs and could negatively impact transaction volume in the short term, it would also promote more transparency and professionalism within the property market.

For Estate Surveyors and Valuers, adaptation is crucial. Introducing after-tax valuation models, enhancing documentation, and keeping a tight working relationship with tax professionals will enable practitioners to succeed in the new regulatory landscape.

Ayoola, is an Estate Surveyor and Valuer based in Abuja.