Taxes are statutory obligations for individuals and businesses, and they significantly determine how much income is ultimately retained. However, Nigerian tax laws provide several legal avenues to reduce tax liabilities, a practice known as tax avoidance, which is distinct from tax evasion, an illegal act.

Tax avoidance involves taking advantage of lawful provisions and incentives within the tax system to minimise tax exposure.

Below are five legitimate ways Nigerians can avoid paying excessive taxes in 2026:

1. Reinvest Proceeds from Asset Sales into Similar Assets

Under the Capital Gains Tax Act, profits from the disposal of assets attract a 10 per cent capital gains tax. However, where the proceeds are reinvested in assets of the same class, payment of the tax can be deferred.

For instance, if a company sells a generator and uses the proceeds to acquire another generator within 12 months before or after the sale, the capital gains tax becomes deferred for as long as the new asset remains in use. This relief does not apply if the proceeds are used to purchase assets of a different class, such as vehicles.

2. Offset Input VAT Against Output VAT

Businesses registered for Value Added Tax (VAT) are allowed to deduct input VAT (VAT paid on purchases) from output VAT (VAT charged on sales).

For example, if a business pays ₦500,000 VAT on raw materials and later charges ₦750,000 VAT on finished goods sold, only the net ₦250,000 should be remitted to the government. Many businesses fail to make this deduction, resulting in unnecessary overpayment.

3. Register as an NGO or Limited by Guarantee

Organisations registered as Limited by Guarantee, such as charities, religious institutions, and NGOs, are generally exempt from company income tax.

While such entities are prohibited from sharing profits as dividends, they enjoy tax relief on operational income. However, income from investments, such as dividends, still attracts withholding tax. Businesses focused on social impact or charity may benefit from this structure.

4. Claim Capital Allowances on Business Assets

Capital allowances serve as tax relief for the wear and tear of business assets such as machinery and equipment.

To benefit, companies must obtain a Certificate of Acceptance from the Ministry of Trade and a Capital Allowance Certificate from the Ministry of Industry. These certificates allow companies to deduct capital allowances from taxable profits, significantly reducing income tax obligations.

5. Collect and Utilise Withholding Tax Credit Notes

Withholding Tax (WHT) deducted on contracts for supplies and services is not a final tax but an advance payment of income tax.

Businesses must ensure they collect WHT credit notes from clients who deduct tax from their invoices. These credits can then be offset against total tax liabilities, preventing double taxation and excessive payments.

Conclusion

Paying tax is mandatory, but overpaying is optional. Understanding and applying tax provisions correctly can help individuals and businesses remain compliant while maximising income retention in 2026.

Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. (Saturday Tribune)

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