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While the 2026 tax reforms have simplified many things, the treatment of ‘wear and tear’ on assets remains a vital tax-saving tool. In Nigeria, you cannot deduct accounting depreciation from your taxable profit. Instead, you claim Capital Allowances. Under the Nigeria Tax Act 2025, the old system of Initial and Annual Allowances has been replaced with a more uniform annual rate system.
The New 2026 Rates
The 2026 regime has moved away from variable initial percentages to standardized annual rates based on asset category:
- Buildings (Industrial/Non-Industrial): 10% per annum.
- Plant, Machinery, and Mining: 20% per annum.
- Motor Vehicles and Software: 25% per annum.
- Furniture and Fittings: 20% per annum.
Pro-tip: Software and digital applications are now officially recognized as qualifying expenditures. For a full list of what counts, see The Ultimate Guide to Company Income Tax. These calculations are core to How to Calculate Company Income Tax.
Crucial Rules for 2026
- The 1% Retention Rule: You cannot write off an asset to zero. You must retain a nominal value of 1% (or ₦10) in your books until the asset is disposed of.
- The 2/3 Restriction: For most companies, the total capital allowance claim is restricted to 66.6% (two-thirds) of the assessable profit. However, manufacturing and agricultural firms are exempt from this limit.
- VAT/Import Levy Condition: You can ONLY claim allowances on assets where you have proof that VAT or the required import levies were paid during acquisition.
Practical example: A logistics firm buys a fleet of five trucks for ₦100 million. They can claim ₦25 million annually as an allowance. If they have ₦30 million in profit, they can only use ₦20 million (2/3 of 30) this year, carrying forward the remaining ₦5 million. To manage these claims, check our Tax Compliance Checklist. For technical tables, visit KPMG Nigeria or the NRS Portal.
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