In financial accounting, a business can depreciate its fixed assets with a straight-line method or reducing balance method or units of production. However, the principle is different for calculating the capital allowance. All taxpayers must use the same rate. Schedule II of the Companies Income Tax Act 2004 contains the capital allowance rates in Nigeria for qualifying capital expenditure.
Note, that the tax provision uses “qualifying capital expenditure (QCE) and not fixed assets. A fixed asset must therefore meet certain conditions to be a QCE. Next, a taxpayer will calculate capital allowance using the appropriate rates. There are two types of rates for capital allowance in Nigeria. They are initial and annual allowance which have been discussed in our article on capital allowance in Nigeria.
Capital allowance rates
The table below shows the various rates on QCE.
| Qualifying expenditure | Rate (%) |
| (i) Building Expenditure (ii) Agricultural Expenditure (iii) Mast Expenditure (iv) Intangible assets Expenditure (v) Heavy Transportation Expenditure | 10% |
| (i) Plant Expenditure (ii) Agricultural Equipment Expenditure (iii) Furniture and Fittings Expenditure (iv) Mining Expenditure (v) Other Equipment Expenditure | 20% |
| (i) Motor Vehicle Expenditure (ii) Software Expenditure (iii) Other Capital Expenditure | 25% |
| Capital allowance rate for company |
How to use the rate
- Calculate the capital allowance rate * Cost of the asset.
- Retain 1% of the cost of the asset in the books at the end of the useful life.
- Initial allowance and investment allowance have been deleted.
