Understanding the Determination of Adjusted Profit under the Nigeria Tax Act, 2025

Understanding the Determination of Adjusted Profit under the Nigeria Tax Act, 2025

By Baha’s Books | www.bahasbooks.com

Opening Thought

“It’s not the beauty of the building you should look at; focus first on the construction of a foundation that will stand the test of time.”

Just like in architecture, taxation depends on a strong foundation. Without one, even the most polished computations collapse under scrutiny. In tax practice, that foundation is understanding why we treat items as allowable or disallowable and where those treatments come from in the law.

This session on the Determination of Adjusted Profit is that foundation. It teaches how to move from a company’s accounting profit before tax (PBT) to a legally sound Adjusted Profit—the figure that determines a company’s taxable base under the Companies Income Tax (CIT) regime.

What We’ll Cover

Taxable income (Chapter Two, Part I—sections 3–4)

Profits exempted from tax (Chapter Eight, Part I—starting at section 163)

Deductible expenses (section 20) and disallowed expenses (section 21)

Computation path to adjusted profit

Rates and minimum effective tax (sections 56–57)

1) Taxable income: where the charge begins

The Act first imposes the tax (section 3) and then defines the income, profits or gains chargeable to tax (section 4). Practically, it means all company income within scope is taxable unless an explicit exemption applies. The safest working rule is to treat inflows as taxable and then test for an exemption under the Act.

2) Profits exempted from CIT: how the Act carves out relief

Exemptions are set out under Chapter Eight, Part I (from section 163). These provisions specify which bodies and incomes the law removes from the charge, and the conditions for enjoying that relief. Use them as the authoritative list rather than older CITA section numbers. For cross-border income, remember that double-tax relief is governed by Chapter Four (sections 120–122) and interacts with the exemption framework; do not assume a blanket exemption simply because funds were remitted through an approved channel.

3) The legal allowability test for expenses

Under section 20(1), deductible expenses are those “wholly and exclusively incurred in the production of the income.” That is the statutory test you must apply when deciding whether an expense reduces taxable profit. 

Examples that fit squarely within section 20 include:

  • Interest on debt employed in generating the income (subject to the Third Schedule constraints). 

  • Rent and premiums for land/buildings occupied for business purposes. 

  • Employee remuneration and benefits costs.

  • Repairs of premises, plant, machinery and fixtures (not capital improvements).

  • Pension contributions approved under the Pension Reform Act.

  • Loss of stock/inventory proven to the tax authority’s satisfaction.

  • Bad and doubtful debts—with safeguards: the debts must arise from the trade, “bad” debts exclude related-party cases, and “doubtful” debts must be GAAP-based and proven to the authority’s satisfaction.

4) Donations and R&D: where they live in the 2025 Act

Deductible donations and research & development no longer sit in the old CITA sections. They are now in Chapter Eight, notably sections 164–165. Donations are allowable only as the Act prescribes (including the statutory cap for certain emergency/government donations), and R&D is deductible subject to the conditions in section 165. Anchor your computation to those provisions.

5) Disallowed expenses (add-backs)

Items that fail the “wholly and exclusively” test, are personal, purely capital in nature without a relieving provision, or are unsupported general provisions must be added back under section 21 (Deductions not allowed) before arriving at adjusted profit. 

Common add-backs in practice include depreciation (capital allowance is the relief mechanism), fines and penalties, non-business costs, and blanket reserves.

6) Rates and the minimum effective tax rule

After adjusted profit is computed and carried through to assessable/total profit, the company rate is determined under section 56. The Act also introduces a minimum effective tax rate framework in section 57 (15%) to ensure the overall effective burden does not fall below a statutory floor. There is no 20% “medium band” in the 2025 Act, so remove that tier from your working papers.

7) From PBT to Adjusted Profit: the workflow that stands up in a review

  1. Start with PBT from the financials.

  2. Add back disallowed/non-deductible items per section 21.Tax Act 2025

  3. Deduct expenses that are wholly and exclusively for the trade per section 20 (and apply the Third Schedule, where relevant).

  4. Exclude exempt income under Chapter Eight, Part I, and factor any double-tax relief under Chapter Four where applicable.


What you have is Adjusted Profit—your legal foundation for assessable profit, total profit, and, ultimately, the section 56 charge (subject to section 57 checks)

Final Thought

A solid computation stands on statutory anchors. By tying recognition (sections 3–4), deductibility (section 20), add-backs (section 21), exemptions (Chapter Eight), cross-border relief (Chapter Four), and the charge/rate rules (sections 56–57) together, you build a tax position that can stand up to any review.

Baha’s Books turns dense provisions into working clarity for finance teams and advisors. Explore more at www.bahasbooks.com

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