Capital allowance rates in Nigeria

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 Companies Income Tax Act 2004 contains the capital allowance rates in Nigeria for qualifying capital expenditure.

Note the use of qualifying capital expenditure (QCE) and not fixed assets. It means that a fixed asset must 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. Our article on capital allowance in Nigeria is here.

Capital allowance rates

The table below shows the various rates on QCE.

Qualifying expenditureInitial allowance (%)Annual allowance (%)
Building (industrial and non-industrial)1510
Mining95NIL
Plant:
– Agricultural production
95NIL
– Others5025
Furniture & fittings2520
Motor vehicle:
– Public transportation
95NIL
– Others5025
Plantation equipment95NIL
Housing estate5025
Ranching & plantation3050
Research & development95NIL
Rates – Capital allowance in Nigeria 

How to use the rate

  • Determine the initial allowance (IA). Initial allowance rate * cost of the asset.

  • Calculate the annual allowance (AA). Annual allowance rate * (Cost of the asset minus initial allowance).

  • Initial allowance is a one-off relief. A taxpayer can claim both IA and AA in the first year of purchase. After the first year, a taxpayer can claim an annual allowance only. A company must retain NGN10 for each asset in the accounts until the business disposes of the assets.

  • Capital allowance can reduce the assessable profits before arriving at the taxable profits. However, the maximum capital allowance that a taxpayer can claim is two-thirds of assessable profits except a company in the agro‐allied industry or a manufacturing company.

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