Frontier market’s highest gains tax puts Nigeria stocks at risk

Foreign investors may think twice before picking Nigeria over other frontier markets when its 30% capital gains tax, the highest among its peers, takes effect in January 2026.

Through the introduction of the new capital gains tax, Nigeria could earn up to N1 trillion annually. But the move has already begun to unsettle both investors and issuers.

Capital gains taxes apply when investments such as stocks, bonds, and digital assets are sold at a profit. Under the reform, Nigeria will introduce a rate of up to 30 percent on foreign equity investors, and 25 percent for reinvestments in local fixed-income or non-equity assets, the highest among frontier markets.

Victor Athe, Partner, Tax & Strategy Services, said the policy could have unintended consequences.

“Indeed, there is a risk that the tax hike may dampen foreign investor appetite, as higher CGT reduces investors’ net take on equity sales. Investors who are speculative or short-term focused may have to sell off and lock in gains before the new rates take effect.

“From a macroeconomic context, Nigeria is seeking to boost tax revenues amid fiscal pressures, currency reforms, and subsidy removals. A sharp pullback in foreign investments could undermine liquidity and increase volatility. The move fits into the government’s broader push to expand the non-oil tax base, but the risk is that it may send mixed signals to foreign investors at a time when the country is seeking FDI and portfolio inflows to support the naira and deepen financial markets,” Athe said.

Bukola Bankole, Partner and Corporate Finance Expert at TNP, said the decision to raise capital gains tax on foreign equity investors to 30 percent “sends a strong fiscal message but risks unsettling the renewed confidence returning to the market.”

“The NGX has gained momentum on improved sentiment and stronger corporate results, and this policy shift could interrupt that recovery,” she said. “For offshore investors already contending with FX volatility and repatriation delays, the higher tax changes the post-return picture in a way that may slow new inflows.”

Bankole noted that at 30 percent, Nigeria would rank among the highest-taxed frontier markets. “For foreign portfolio investors, that matters, especially when comparable markets in Africa and Asia offer effective rates mostly between 0 and 20 percent, alongside greater policy predictability. The issue isn’t the tax itself but its timing and the signal it sends. Investors make long-term decisions based on stability, and sudden changes like this tend to create hesitation just when confidence is improving.”

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She added that the tax rise also runs counter to recent monetary signals. “The Central Bank’s modest rate cut was seen as a shift toward supporting growth and credit expansion, while the tax hike tightens post-return yields. Without better alignment between fiscal and monetary policy, mixed messages like this risk dampening investor enthusiasm just as liquidity is returning. In isolation, the hike may bring short-term revenue, but without broader reforms that strengthen FX stability and deepen market trust, it could end up costing more in lost confidence than it raises in tax. In Nigeria’s capital market, confidence remains the most valuable currency.”

Akinbamidele Akintola, Chief Commercial Officer at retail tech firm Alerzo, questioned the logic of the move. “Will foreign portfolio investors be forced to pay this tax? If they are, then Nigeria just made itself even less attractive compared to every other frontier market out there,” he said. “Imagine a foreign investor weighing where to park capital: on one side, Kenya exempts listed equities from capital gains tax altogether; on the other, Nigeria now imposes a 25 percent haircut at the exit door. Why would you choose Nigeria?”

Akintola, a former head of sub-Saharan Africa equity and fixed income sales at Stanbic IBTC, warned that the implications could be severe. “Foreign participation will fall. Liquidity will dry up. Bid-ask spreads will widen. Valuations will compress. Long-term holders will be punished because inflation isn’t recognised in the cost base. And the overall perception of Nigeria as a place to invest will slide even further.”

He suggested that the government consider “smarter ways” to achieve its revenue goals. “If the government really wants to deepen the equity market, there are better tools. Incentivise long-term holding by offering tax credits or reward reinvestment into priority sectors. Give pension funds and asset managers clearer rules on equity allocation. Strengthen the regulatory framework so investors feel protected. In short, use carrots, not sticks. Right now, Nigeria needs every drop of foreign and local capital it can get. Putting up a 25 percent barrier at the exit door is the exact opposite of what we should be doing.”

At the 31st Nigerian Economic Summit (NES #31), Abubakar Atiku Bagudu, Minister of Budget and Economic Planning, acknowledged the need for stability and coherence in policymaking. “The government recognises the need for stable policies, consistent regulations, and an improved business environment to boost investor confidence and reduce uncertainty,” he said.

Bagudu noted that the administration was working to streamline regulatory frameworks and enhance predictability. “Our policy responses in the fiscal sector, as outlined in the Four Tax Reform Acts, are aimed at strengthening revenue mobilisation for sustainable growth. We have been prioritising monetary and fiscal coordination to stabilise macroeconomic parameters. Our revenue diversification strategy includes boosting non-oil revenue, supporting manufacturing, and driving digital transformation,” he said.

Despite government reassurances, market participants remain cautious. With the Nigerian Exchange (NGX) up about 40 percent this year, analysts warn that the new tax could moderate the rally through short-term sell-offs.

Temi Popoola, Group Managing Director and Chief Executive Officer of NGX Group, said: “Reforms of this scale raise important questions for issuers and investors alike. Our priority is to ensure the capital market remains attractive and forward-looking. By creating forums like this, we provide clarity, enable dialogue, and help the market adapt to fiscal changes in ways that support long-term growth.”

At the same event, Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, said the reform was structured to protect retail investors, noting that a ₦150 million annual exemption threshold would exclude 99.9 percent of individual investors from the capital gains tax.

“The Tax Reform Act is designed not to stifle investment but to create a fair, transparent, and sustainable tax environment,” he said. “While the standard rate is 30 percent, a reduced 25 percent CGT will apply when proceeds from share sales are reinvested in fixed-income securities or other non-equity assets, whereas reinvestments into Nigerian companies, listed or unlisted, remain exempt. This is meant to channel more capital into productive equity that drives company growth, creates jobs, and supports long-term market sustainability.”