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IAS 12

Income Taxes

IAS 12 prescribes the accounting for current and deferred tax, requiring an entity to recognise a deferred tax liability or asset for the future tax consequences of differences between the carrying amount of assets and liabilities and their tax base, alongside the current tax payable or recoverable on taxable profit for the period. [S1]

Effective 1998-01-01Related: IAS 1 · IAS 8 · IAS 10 · IAS 37

Overview

IAS 12 splits the tax charge into current tax (the amount payable to, or recoverable from, the tax authority on the current period's taxable profit, computed using tax rules that often differ from IFRS) and deferred tax (the future tax consequences of temporary differences between the accounting carrying amount of an asset or liability and its tax base). [S1] Recognising deferred tax matches the tax effect of a transaction to the accounting period in which the underlying income or expense is recognised, rather than to the period in which tax is actually paid or saved. [S2]

Why it matters

Without deferred tax, reported profit after tax would swing with unrelated tax-timing effects (for example, capital allowances running faster than book depreciation) rather than reflecting the entity's real economic performance. IAS 12 is also the bridge between the statutory tax computation prepared for the tax authority and the tax expense shown to the board, lenders and investors in the IFRS financial statements — the two are related but not identical, and conflating them is a leading cause of avoidable audit findings.

Scope

Applies to all domestic and foreign taxes based on taxable profits, including withholding taxes payable by a subsidiary, associate or joint arrangement on distributions to the reporting entity. [S1] It does not address government grants (IAS 20) or investment tax credits, though it does address the tax consequences of temporary differences arising from them. Consumption taxes such as VAT are outside IAS 12's scope, since VAT is not a tax on the entity's own taxable profit but a pass-through collected from customers on the government's behalf.

Key definitions

term: Current tax
definition: The amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period.
term: Tax base
definition: The amount attributed to an asset or liability for tax purposes.
term: Temporary difference
definition: A difference between the carrying amount of an asset or liability and its tax base, which will result in taxable or deductible amounts in future periods when the carrying amount is recovered or settled.
term: Taxable temporary difference
definition: A temporary difference that will result in taxable amounts in future periods, giving rise to a deferred tax liability.
term: Deductible temporary difference
definition: A temporary difference that will result in deductible amounts in future periods, giving rise to a deferred tax asset, subject to recoverability.
term: Deferred tax liability
definition: Income taxes payable in future periods in respect of taxable temporary differences.
term: Deferred tax asset
definition: Income taxes recoverable in future periods in respect of deductible temporary differences, unused tax losses and unused tax credits, to the extent recovery is probable.

Recognition

Current tax for the current and prior periods is recognised as a liability to the extent unpaid, or as an asset to the extent amounts already paid exceed the amount due. A deferred tax liability is recognised for all taxable temporary differences, with limited exceptions (e.g. the initial recognition exemption for certain assets/liabilities that do not arise from a business combination and, at the time of the transaction, affect neither accounting profit nor taxable profit). A deferred tax asset is recognised for deductible temporary differences and unused tax losses/credits only to the extent it is probable that future taxable profit will be available against which the deductible amount can be utilised.

Initial measurement

Current tax is measured at the amount expected to be paid to (recovered from) the tax authority, using tax rates enacted or substantively enacted by the reporting date. Deferred tax is measured at the tax rates expected to apply in the period the asset is realised or the liability is settled, based on rates (and tax laws) enacted or substantively enacted by the reporting date, reflecting the tax consequences that follow from the manner in which the entity expects to recover or settle the carrying amount of its assets and liabilities.

Subsequent measurement

Deferred tax balances are not discounted, and are reassessed at each reporting date: a previously unrecognised deferred tax asset is recognised once it becomes probable that future taxable profit will allow its recovery; the carrying amount of a recognised deferred tax asset is reviewed and reduced if it is no longer probable that sufficient taxable profit will be available. Deferred tax on items originally recognised outside profit or loss (in OCI or directly in equity) is itself recognised outside profit or loss.

Presentation

Current tax assets and liabilities are offset only when the entity has a legally enforceable right to set off and intends to settle on a net basis (or realise and settle simultaneously); deferred tax assets and liabilities are similarly offset only when a legally enforceable right of set-off exists and they relate to income taxes levied by the same tax authority. Deferred tax assets and liabilities are always classified as non-current in the statement of financial position. The tax expense (income) related to profit or loss is presented in the statement of profit or loss, split between current and deferred tax in the notes, with a reconciliation of tax expense to accounting profit multiplied by the applicable rate.

Disclosure checklist

Major components of tax expense (income): current tax expense, adjustments for prior periods, deferred tax expense/income relating to the origination and reversal of temporary differences, and the effect of changes in tax rates.
A numerical reconciliation between tax expense and accounting profit multiplied by the applicable tax rate(s), explaining the basis of the applicable rate used.
An explanation of changes in the applicable tax rate(s) compared to the previous period.
The amount (and expiry date, if any) of deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax asset is recognised.
The amount of temporary differences associated with investments in subsidiaries, branches, associates and joint arrangements for which no deferred tax liability has been recognised.
For each type of temporary difference and unused tax loss/credit, the amount of deferred tax assets and liabilities recognised, and the movement in the deferred tax balance during the period.
The amount of a deferred tax asset and the nature of the evidence supporting its recognition when utilisation depends on future taxable profits exceeding the profits from reversal of existing taxable temporary differences.

Practical treatment

The commonest deferred tax items in practice are: accelerated capital allowances on qualifying capital expenditure creating a taxable temporary difference (book carrying amount of PPE exceeds tax written-down value) and hence a deferred tax liability; unused tax losses carried forward, which give rise to a deferred tax asset only where future taxable profits are probable, taking into account any statutory restriction on the carry-forward period or the proportion of profit losses may shelter; and revaluation of property under the cost/revaluation model choice, which creates a deferred tax liability on the revaluation surplus. Where a position taken in a filed tax computation is uncertain, the accounting best estimate of the probable outcome should still be reflected in current and/or deferred tax, even though the position filed with the tax authority may differ pending an audit or ruling. See nigeria_notes for jurisdiction-specific rates, thresholds and administrator terminology, and 30% is used throughout this file as the standard illustrative companies income tax rate for companies that do not qualify as small companies; it is not universally applicable to every company, and sector-specific regimes (e.g. upstream petroleum, which layers Hydrocarbon Tax on top of CIT) or incentive-driven reliefs (e.g. pioneer status) can produce a different effective outcome. [S_TAX1][S5]

Common mistakes

Treating VAT payable/recoverable balances as part of the income tax expense or deferred tax computation, when VAT is outside IAS 12's scope entirely.
Failing to recognise a deferred tax liability for accelerated capital allowances because 'the cash tax saved this year is a permanent benefit', when in fact the difference typically reverses over the asset's life and is a timing difference, not a permanent one.
Recognising a deferred tax asset for the full value of unused tax losses without a probable-recovery assessment, or without considering statutory time or value limits on loss utilisation.
Applying the current CIT rate to measure deferred tax when a different rate is enacted or substantively enacted to apply in the period the temporary difference is expected to reverse.
Presenting deferred tax as a current asset/liability instead of non-current.
Netting deferred tax assets and liabilities from different tax jurisdictions or unrelated tax authorities where no legal right of set-off exists.
Assuming every small company is automatically outside the deferred tax computation without reassessing that status each period.

Links with other standards

code: IAS 1
relationship: Tax expense/income is presented in profit or loss and OCI as required by IAS 1; the tax reconciliation note is a required disclosure supporting the primary statements.
code: IAS 8
relationship: A prior period error correction or voluntary policy change that restates profit generally requires a corresponding restatement of current and deferred tax for the periods affected.
code: IAS 10
relationship: A change in tax law or rate enacted or substantively enacted after the reporting date but before authorisation for issue is typically a non-adjusting event unless it provides evidence of a condition existing at year-end; the effect and its estimated financial impact should be disclosed if material.
code: IAS 37
relationship: Uncertain tax positions and tax disputes may also need consideration alongside IAS 12 for provisions/contingent liabilities not falling within income tax measurement itself.

CFO checklist

Reconcile the accounting profit-based tax reconciliation to the actual CIT computation filed (or to be filed) with the tax authority, and be able to explain every reconciling item to the board and auditors.
Maintain a temporary-difference schedule (PPE tax written-down value vs carrying amount, provisions, unused tax losses, revaluation surpluses) updated each reporting period, not just at year-end.
Assess and document the probability of future taxable profit before recognising or continuing to recognise a deferred tax asset for unused tax losses.
Confirm the tax rate used to measure deferred tax reflects rates enacted or substantively enacted by the reporting date, including any staged rate change.
Exclude VAT balances entirely from the income tax note; keep them presented as separate current assets/liabilities.
Reassess small-company qualifying status (turnover and fixed-asset thresholds) every period rather than assuming it persists indefinitely.

FAQs

q: Our company qualifies as a small company with a 0% CIT rate — do we still need deferred tax?
a: If a company is genuinely and durably taxed at 0% subject to the qualifying conditions and expects to remain within the small-company thresholds for the foreseeable future, deferred tax on most temporary differences may be immaterial or nil, since there is no future tax consequence to provide for; however, growth into the standard-rate bracket should be monitored and reflected once probable, and the qualifying status should be reassessed each period rather than assumed indefinitely. See nigeria_notes for the thresholds and the citation-pending flag attached to them.
q: Is VAT recoverable from the tax authority shown as part of our deferred tax asset?
a: No. VAT is a consumption tax on supplies, not a tax on the entity's own taxable profit, so it falls entirely outside IAS 12; VAT recoverable is presented as a current receivable, unrelated to the income tax note.
q: We have significant unused tax losses from a start-up period — can we recognise a full deferred tax asset now?
a: Only to the extent it is probable that future taxable profit will be available to utilise the losses, taking into account convincing evidence such as approved budgets/forecasts, the existence of taxable temporary differences that will reverse in the same periods, and any statutory restrictions on the carry-forward period or the proportion of profit the losses can shelter.

Nigeria application notes

Regulatory overlay

IAS 12 applies in full to Nigerian public interest entities under the FRCN Act 2011 mandate; the current tax computation is governed separately by the Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025, both effective 1 January 2026, which repeal and consolidate the former Companies Income Tax Act, Value Added Tax Act, Capital Gains Tax Act and related statutes. [S3][S_TAX2][S_TAX1]

Tax interaction (Nigeria)

Standard companies income tax (CIT) rate: 30% of taxable profits for companies that do not qualify as small companies, used here only as a standard illustrative rate (30% is used throughout this file as the standard illustrative companies income tax rate for companies that do not qualify as small companies; it is not universally applicable to every company, and sector-specific regimes (e.g. upstream petroleum, which layers Hydrocarbon Tax on top of CIT) or incentive-driven reliefs (e.g. pioneer status) can produce a different effective outcome. [S_TAX1][S5]). Small-company relief: qualifying small companies are taxed at 0% CIT, and are also exempt from capital gains tax (CGT) and the development levy, subject to meeting the qualifying conditions in the Act (including that businesses providing professional services are excluded from small-company treatment regardless of size). [S_SME1][S_SME3] Small-company thresholds: annual gross turnover not exceeding ₦100,000,000 and total fixed assets not exceeding ₦250,000,000. Citation pending / reviewer confirmation required: the ₦100,000,000 turnover threshold and ₦250,000,000 fixed-asset threshold for 'small company' status are adopted here on the basis of secondary professional commentary interpreting the Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025 [S_SME1][S_SME2][S_SME3]; Outliers has not been supplied with the primary NRS/FIRS implementation circular or gazetted statutory text for direct citation. Confirm both thresholds against the primary legislative text or an NRS circular before relying on this figure in client advice, and update this citation once the primary source is available. Minimum effective tax rate (ETR): a 15% minimum ETR applies, per PwC's own published Nigeria tax guidance, to (i) Nigerian companies with annual turnover of ₦50 billion and above, and (ii) Nigerian members of a multinational group with aggregate group turnover of EUR750 million and above (or its equivalent); where a company's effective tax rate on 'Net Income' (profit before tax excluding franked investment income and unrealised FX gains/losses) falls below 15%, additional top-up tax is payable to bring it up to the minimum. The detailed computation and administrative modalities for the top-up tax had not been released by the tax authorities as at the date of the PwC guidance cited, so the mechanics (as opposed to the scope thresholds) remain a reviewer-confirmation item pending further NRS guidance. [S5][S_TAX1] Capital gains tax: harmonised with the CIT rate at 30% for companies under the Nigeria Tax Act 2025, up from a historic 10% rate under the pre-reform regime; this CGT rate change (not a small-company CIT rate) is the source of the '10%' figure sometimes seen in older commentary, and the two should not be conflated. [S_SME1][S6] Withholding tax (WHT): the Nigeria Tax Act 2025 and its implementing WHT Regulations continue a deduction-at-source regime; a February 2025 FIRS circular exempted small companies from deducting WHT where a transaction is ₦2,000,000 or less and the supplier holds a valid tax identification number, but specific WHT rate percentages by transaction category are not verified within this file and should be checked directly against the WHT Regulations or NRS guidance before being quoted as a rate schedule to a client. [S6] VAT: the standard VAT rate remains 7.5% under the Nigeria Tax Act 2025 and is unaffected by the CIT/CGT changes; VAT sits outside IAS 12's scope entirely. [S_TAX3]

FX considerations

Where deferred tax relates to assets or liabilities carried at a foreign-currency-denominated cost or value, the temporary difference calculation should use the carrying amount and tax base each translated on a basis consistent with IAS 21, since the two can diverge if the tax base is fixed in naira terms while the accounting carrying amount is retranslated.

SME practical note

For a Nigerian entity newly qualifying as a small company under the ₦100,000,000 turnover / ₦250,000,000 fixed-asset thresholds, deferred tax may become immaterial going forward, but existing deferred tax balances built up in prior years at the standard rate should not simply be derecognised without a considered assessment of whether the 0% status is expected to persist and whether existing temporary differences will reverse while that status holds.

Common Nigerian pitfalls

Quoting the ₦100,000,000 small-company turnover threshold or the ₦250,000,000 fixed-asset threshold to a client without confirming them against the primary Act text or an NRS circular first (see the citation-pending flag in tax_interaction).
Conflating the historic 10% capital gains tax rate (now 30%) with any small-company CIT rate; the two are unrelated figures from different reforms.
Quoting specific WHT rate percentages from memory instead of checking the current WHT Regulations and NRS guidance.
Referring to 'FIRS' as the current tax administrator without noting the transition to NRS under the Nigeria Revenue Service (Establishment) Act 2025.
Assuming the 15% minimum effective tax rate regime only concerns multinational groups and overlooking that it also captures standalone Nigerian companies with turnover of ₦50 billion and above, independent of any multinational group membership.
Blending VAT balances into the income tax note instead of presenting them as separate current assets/liabilities.

FRC pronouncements

No FRCN pronouncement specific to income tax accounting has been identified; FRCN's role is the general supervisory mandate to promote IFRS compliance, while the National Assembly and the Nigeria Revenue Service (NRS) — the successor administrator to the former Federal Inland Revenue Service (FIRS) under the Nigeria Revenue Service (Establishment) Act 2025 — govern the underlying tax rules IAS 12 measures. Some secondary sources published shortly before or around the 1 January 2026 transition still refer to 'FIRS'; both names may appear in older circulars and commentary, and 'NRS' is the current administrator name post-transition. [S3][S6]

Worked examples

Deferred tax liability — accelerated capital allowances

A manufacturing company's plant and machinery has an accounting carrying amount of ₦80,000,000 at year-end. The tax written-down value (after claiming capital allowances at rates faster than book depreciation) is ₦50,000,000. The applicable CIT rate is 30% (the company does not qualify as a small company).

Facts

Workings

Carrying amount: 80,000,000

Tax base (tax written-down value): 50,000,000

Taxable temporary difference: 80,000,000 - 50,000,000 = 30,000,000

Deferred tax liability: 30,000,000 x 30% = 9,000,000

Journal entries

Recognise deferred tax liability on accelerated capital allowances.

Account	Dr (₦)	Cr (₦)
Income tax expense (deferred tax) – profit or loss	9,000,000
Deferred tax liability (non-current)		9,000,000

Deferred tax asset — unused tax losses (partial recognition)

A newly established technology company has accumulated unused tax losses of ₦60,000,000. Approved three-year forecasts, reviewed by the board, support recovery of only ₦40,000,000 of these losses against probable future taxable profit within the permitted carry-forward period; the remaining ₦20,000,000 is not considered probable of recovery. The applicable CIT rate is 30%.

Facts

Workings

Total unused tax losses: 60,000,000

Portion supported by probable future taxable profit: 40,000,000

Deferred tax asset recognised: 40,000,000 x 30% = 12,000,000

Unrecognised losses (disclosed, not recognised): 20,000,000

Journal entries

Recognise deferred tax asset on the probable-recovery portion of unused tax losses.

Account	Dr (₦)	Cr (₦)
Deferred tax asset (non-current)	12,000,000
Income tax expense (deferred tax) – profit or loss		12,000,000

Small company — 0% CIT rate and deferred tax reassessment

A trading company has annual gross turnover of ₦85,000,000 and total fixed assets of ₦120,000,000, placing it within the small-company thresholds. It does not provide professional services. It carries a deferred tax liability of ₦3,000,000 brought forward from a prior year when it was taxed at the standard rate.

Facts

Workings

Confirm turnover (85,000,000) is at or below the ₦100,000,000 threshold: qualifies.

Confirm fixed assets (120,000,000) are at or below the ₦250,000,000 threshold: qualifies.

Confirm the entity is not a professional services provider: qualifies.

CIT rate applicable going forward: 0%, subject to continued qualification each period.

Existing deferred tax liability of 3,000,000 is reassessed, not automatically derecognised, since it depends on whether the underlying temporary differences will reverse while 0% status persists and on management's expectation of continued qualification.

Journal entries

Derecognise deferred tax liability following confirmation that the qualifying small-company status is expected to persist and the underlying temporary difference will not result in a future tax outflow.

Account	Dr (₦)	Cr (₦)
Deferred tax liability (non-current)	3,000,000
Income tax expense (deferred tax) – profit or loss		3,000,000

Sources & citations

[S1]IAS 12 Income Taxes — IFRS Foundationaccessed 2026-07-18
[S2]IAS 12 — Income Taxes (standard summary) — IAS Plus, Deloitteaccessed 2026-07-18
[S3]IFRS - Use of IFRS Standards by jurisdiction: Nigeria — IFRS Foundationaccessed 2026-07-18
[S_TAX1]The Nigerian Tax Reform Acts — PwC Nigeriaaccessed 2026-07-18
[S_TAX2]Nigeria Tax Act, 2025 has been signed – highlights — EY Globalaccessed 2026-07-18
[S_TAX3]Nigeria - New Legislation Includes Important Changes to VAT Rules — BDO Globalaccessed 2026-07-18
[S5]Nigeria - Corporate - Taxes on corporate income — PwC Worldwide Tax Summariesaccessed 2026-07-18
[S6]Nigeria - Corporate - Significant developments — PwC Worldwide Tax Summariesaccessed 2026-07-18
[S_SME1]Nigeria's 2025 Tax Reform Acts Explained: Key Changes — Baker Tilly Nigeriaaccessed 2026-07-18
[S_SME2]Tax Administration in Nigeria – A Review of the 2025 Nigerian Tax Reform Laws — Afriwiseaccessed 2026-07-18
[S_SME3]Taxation of Small Companies Under the New Tax Regime as 2026 Approaches — Anaje Olumide Oke Akinkugbe (AO2Law)accessed 2026-07-18

Last reviewed 2026-07-18 · Reviewer: Rafiu Olawuyi (FCA — Author / Technical Reviewer)