Foreign exchange loss is tax deductible in Nigeria only up to the naira value at the official Central Bank of Nigeria rate. Under section 20(4) of the Nigeria Tax Act 2025, any extra you pay to buy dollars above that rate is not deductible, so it is taxed as profit. This case shows what that cost one Abuja importer.
This is an anonymised case. Details have been changed and no real client is described. The numbers are illustrative.
What does the law say about foreign exchange loss?
Section 20(4) limits the deduction for an expense incurred in foreign currency to its naira equivalent at the official CBN rate. In its review of gaps in the new tax laws, KPMG Nigeria, as reported by BusinessDay, puts it plainly: the difference between the official rate and the rate actually paid becomes non-deductible, which raises taxable profit and company income tax.
EY's alert on the Act says the same in one line. KPMG adds that the rule is meant to discourage speculative FX activity but does not fully reflect the position of import-dependent businesses that cannot get enough dollars through official channels.
The gap is smaller than it was, but it has not closed. On 10 November 2026, Techeconomy reported an official average of ₦1,346.51 per dollar against ₦1,410 to ₦1,430 in the parallel market. That is a premium of roughly ₦65 to ₦85 on every dollar.
What happened to the Abuja importer?
The company processes and packages agricultural produce. Between August and November 2026 it paid $2.4 million to foreign suppliers for packaging film, spare parts and a technical service fee.
Its bank supplied $900,000 at the official rate. The bank could not meet the rest in time, so the company bought $1.5 million through bureau de change operators and a trade intermediary at an average of ₦1,420. The official rate on the payment dates averaged about ₦1,340.
Finance booked every payment at the rate actually paid and deducted the full naira cost. The ₦80 premium on each of those dollars sat inside cost of sales and an "exchange loss" line. Nobody had flagged it for the tax computation.
What did the numbers show?
VOG Global was asked to review the 2026 tax provision before the year-end audit. The arithmetic was short:
- Non-deductible premium. $1.5 million at ₦80 above the official rate is ₦120 million.
- Company income tax. At 30%, the add-back means ₦36 million of tax that had not been provided.
- Development Levy. At 4% of assessable profit, a further ₦4.8 million.
The total unprovided exposure was ₦40.8 million, before any penalty or interest an audit might add.
How was it resolved?
- Rebuild the FX ledger. We listed every foreign payment by date, amount, source of funds and the CBN official rate for that date. The bank-sourced $900,000 needed no adjustment.
- Book the add-back now. The ₦120 million was added back in the computation and the ₦40.8 million provision booked before the accounts were signed. Correcting it at this stage costs nothing extra. Correcting it after an NRS audit query brings penalties and interest.
- Separate the premium. A new ledger account, "FX premium above official rate", now captures the gap at the time of payment. Management sees it every month and the tax team never has to dig for it.
- Check import duty at the same time. Section 21 also disallows imported items on which duty or levy was not paid. All 14 shipments had cleared with duty paid, so there was no second exposure. Our case on expenses where VAT or duty was not charged explains that rule.
- Fix the sourcing. The real cause was timing. Orders were placed late, so bank allocations arrived after suppliers wanted paying. The company now opens Form M applications earlier, has agreed 60-day terms with its two main suppliers, and has booked a bank forward for a known December payment.
The 2027 import plan is $3 million. Bought with the 2026 mix, at the same ₦80 premium, about ₦150 million of it would have been non-deductible. With most purchases now planned through the bank, the expected add-back is a small fraction of that.
What this means for your business
If you import inputs, pay foreign service fees or repay dollar debt, three checks are worth doing before 31 December:
- Find every dollar bought outside your bank. Compare the rate paid with the CBN official rate for that date. The difference is your likely add-back.
- Price the premium into decisions. A parallel-market dollar now costs the premium plus about 34% of that premium in tax (30% income tax and 4% Development Levy). Use that full cost when you compare suppliers or decide whether to wait for a bank allocation.
- Plan purchases around bank timelines. Early Form M, longer supplier terms and forwards for known payments reduce how often you need non-official FX.
For the wider currency picture, read our guide on how Nigerian companies should manage naira exchange rate risk.
FAQ
Is foreign exchange loss tax deductible in Nigeria? Only up to the naira equivalent at the CBN official rate, under section 20(4) of the Nigeria Tax Act 2025. Any premium paid above that rate is added back and taxed. The rule applies from 1 January 2026.
Is it illegal to buy dollars from a bureau de change? This rule is a tax rule. It does not decide whether the purchase was allowed. It means the premium above the official rate gives you no tax relief, so the purchase costs more than the invoice shows.
Which official rate should we use? Use the rate the CBN publishes for the date of the transaction. Keep a copy of the rate with each payment record, because your auditor and the NRS will both test it.
Does the premium still count in our management accounts? Yes. It is a real cost and stays in your IFRS accounts. The add-back only happens in the tax computation.
Do you buy foreign currency outside your bank? Contact VOG Global in Area 10, Garki, Abuja, or visit vog.global, for a 2026 FX and tax provision review before your year-end audit.