Nigeria: Tax Implications of Accounting for Government Grants: Disclosure of Government Assistance in Nigeria

Introduction

Government grants in Nigeria are accounted for under International Accounting Standard (IAS) 20, “Accounting for Government Grants and Disclosure of Government Assistance,” as adopted in the Nigerian Financial Reporting Standards framework. These grants represent government transfers to entities in return for past or future compliance with certain conditions (Alexander et al., 2020).

IAS 20 classifies government grants into two types: capital grants and income grants. Capital grants relate to the acquisition or construction of long-term assets, while income grants support operating expenses. Grants are recognized only when there is reasonable assurance that conditions will be met and the grant will be received (Wood & Sangster, 2018; Alexander & Nobes, 2016). Capital grants may either reduce the asset’s carrying amount or be recognized as deferred income, amortized over the asset’s useful life (Lennard, 2010). Income grants are recognized in the statement of profit or loss over the periods in which the related costs are incurred (Bohušová & Svoboda, 2012).

Tax Implications

In Nigeria, tax implications of government grants are addressed in the Companies Income Tax Act (CITA). Generally, grants are taxable unless explicitly exempted (ICAN, 2021). If a capital grant reduces the cost of an asset, this results in lower depreciation deductions and hence a higher taxable profit (Warren et al., 2017). When capital grants are treated as deferred income, the income recognized annually over the asset’s life increases taxable income (Spiceland et al., 2019). Income grants, recognized in the year received, increase profits and tax liability unless exempted (Schroeder et al., 2020).

Disclosure of Government Assistance

IAS 20 also mandates the disclosure of government assistance not in the form of grants, such as tax holidays or loan guarantees (Kieso et al., 2020). Entities must disclose the nature, extent, and conditions of both grants and other forms of assistance, including any unfulfilled obligations (Elliott & Elliott, 2017). This enhances transparency, aids financial analysis, and ensures stakeholders—including tax authorities—understand the impact of such assistance (Stolowy & Lebas, 2006). In Nigeria, the Financial Reporting Council (FRC) enforces compliance with IFRS-based standards, emphasizing complete and accurate disclosures in financial statements (Chijoke-Mgbame et al., 2020. 

Conclusion

Accurate classification and disclosure of government grants are critical in Nigeria for both financial reporting and tax compliance. While CITA lacks specific provisions, the chosen accounting treatment significantly affects tax outcomes. Entities must adopt suitable accounting policies and provide full disclosures to avoid non-compliance risks. Professional advice is key to aligning accounting treatments with IFRS and Nigerian tax regulations.

Reference/ Citation

Alexander, D., Britton, A., & Jorissen, A. (2020). International Financial Reporting and Analysis. Cengage.

Wood, F., & Sangster, A. (2018). Business Accounting. Pearson.

ICAN. (2021). Advanced Taxation Study Text. VI Publishing.

Lennard, A. (2010). Accounting for Government Grants. Financial Reporting Faculty.

Bohušová, H., & Svoboda, P. (2012). IFRS in Practice. Wolters Kluwer.

Alexander, D., & Nobes, C. (2016). Financial Accounting: An International   Introduction. Pearson. Warren, C. S., Reeve, J. M., & Duchac, J. (2017). Financial Accounting. C engage

Spiceland, J., Sepe, J., & Nelson, M. (2019). Intermediate Accounting. McGraw-Hill.

Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2020). Financial Accounting Theory and Analysis. Wiley.

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate Accounting. Wiley.

Elliott, B., & Elliott, J. (2017). Financial Accounting and Reporting. Pearson.

Stolowy, H., & Lebas, M. (2006). Corporate Financial Reporting: A Global Perspective. Cengage.

Chijoke-Mgbame, A. M., Mgbame, C. O., & Yekini, L. S. (2020). Corporate Governance and Financial Reporting Quality. Routledge.

FIRS. (2020). Guidelines on Tax Treatment of Government Grants.

Financial Reporting Council of Nigeria (FRCN). (2019). Accounting Guidelines for Government Assistance 

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