AN ANALYSIS OF THE EFFICACY OF FISCAL LAWS RELATING TO PETROLEUM OPERATIONS IN NIGERIA

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✎: AN ANALYSIS OF THE EFFICACY OF FISCAL LAWS RELATING TO PETROLEUM OPERATIONS IN NIGERIA

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Keywords: AN ANALYSIS OF THE EFFICACY OF FISCAL LAWS RELATING TO PETROLEUM OPERATIONS IN NIGERIA

 

RESEARCH BODY

ABSTRACT
Petroleum has become the number one resource in the world because of its
universality. All other resources are demanded in varying scales, but not petroleum.
However the catch is that while demand increases, existing production of this pearl
declines. In Nigeria, the problem appears to be a double-edged sword. Declining
production and the apparently doubted efficacy, and confused state, of the fiscal laws
relating to petroleum operations in the country remain intractable problems which
the government is grappling with. This calls for a re-examination of fiscal policy.

Thus taxation is an inherent element of fiscal policy. The petroleum industry as a
major revenue earner for the government is not immune from this inherent element.
However, concerns surround the efficacy of the fiscal law relating to petroleum
operations having regard to the hackneyed calls for, and untiring efforts at
discovering, cheaper alternative sources of energy, in a world whose economic
activities are now unleashing backlash effects in the form of ozone layer depletion,
global warming and other environmental concerns. More than this fear however, the
government itself recognises that something is wrong somewhere regarding the
beneficial effects or rewards of petroleum to the Nigerian people, having decried the
porosity of the fiscal regime relative to the petroleum sector.

Yet the fiscal regime of petroleum operations in Nigeria appear to be ‘very strong’
when viewed against the backdrop of plethora of legislations specific to this area. The
PPTA, the CITA, the PSC Act and the Incentives Act, apart from other related
legislations which have elements of fiscal policy, are principal legislations here.
Natural with man to find walk around for impediments, it would appear that some of
these legislations are hewn in such a way that it amounted to emasculating the
Nigerian economy, sabotaging the rights of the Nigerian people to development and
impeding economic independence of the nation, so that, on account of the latter, the
economic structure of the country is perpetually neo-colonialist. Aware of these
dangers, the government embarked on a reform agenda of petroleum operations in
Nigeria, propped by the well conceived Petroleum Industry Bill (PIB) 2008.

With the passage of the FIRS (Establishment) Act 2007, the stage appears set for
marked improvement in the revenue to be generated from this prime economic
resource. The Act and the PIB 2008 (if eventually passed into law) will undoubtedly
concatenate to deliver a measure of transparency, responsibility and accountability
with respect to fiscal regime governing this sector. But this is as far as administrative
and legal framework is concerned. Sadly, in a desperate bid to save the system, the
government adopts carrot-and-stick measures. In the alternative, what is needed,
among others, is a responsible political system where infrastructural facilities are not
epileptic or waning, where energy supply (in terms of power) is steady and stable,
where security of lives and property is not a daydreaming fantasy and where good
governance framework is the avowed commitment of the government. These are the
key elements of realising and sustaining the efficacy of the fiscal regime attending to
petroleum operations in Nigeria.

 

TABLE OF CONTENTS
Abstract – – – vii
Table of Contents – – – ix
Table of Cases – – – xiv
Table Statutes – – – xvi
Table of International Instruments – – xxviii
Table of Statutory Instruments – – xxix
Table of Bills – – – xxx
List of Tables – – – xxxii
CHAPTER ONE – GENERAL INTRODUCTION
1.0 Introduction – – 1
1.1 Statement of the Problem – – 5
1.2 Objective of the Research – – 7
1.3 Scope of the Research – – 8
1.4 Methodology of the Research – 9
1.5 Justification of the Research – – 9
1.6 Literature Review – – 10
1.7 Organisation of the Research – – 14

CHAPTER TWO – THE NIGERIAN PETROLEUM INDUSTRY
2.0 Introduction – – 19

x
2.1 History of Nigerian Petroleum Industry – 24

2.1.1 First Phase – 1900 to 1959 – 25
2.1.2 Second Phase – 1960 to Date – 31
2.2 Legislations Relating to Petroleum Operations in Nigeria 50
2.2.1 The Petroleum Act – – 54
2.3 The Structure of Petroleum Operations in Nigeria – 59
2.3.1 Upstream Operations – – 65
2.3.2 Downstream Operations – – 71
2.3.3 Natural Gas Operations – – 88
2.3.4 Petroleum Industry Reform – 91
2.4 Ownership, Environment and Community Issues – 99
2.4.1 Ownership – – 100
2.4.2 Environmental Issues – – 109
2.4.3 Community Issues – – 114
2.5 Contractual Arrangements in Petroleum Operations – 120

CHAPTER III – FISCAL LAWS RELATING TO UPSTREAM OPERATIONS
3.0 Introduction – – 128
3.1 Petroleum Profits Tax Act (PPTA) – – 129
3.1.1. Overview of the PPTA – 129
3.1.2 Scope of the PPTA – 135
3.1.3 Basis of Assessment under the PPTA – 137
3.1.4 Ascertaining Profits and Tax Computation under the PPTA 139
3.1.5 Assessment under the PPTA – 160
3.1.6 The PPTA and Memorandum of Understanding (MOU) 162

xi
3.1.7 Donations and Contributions under the PPTA – 166
3.1.8 Collection, Penalty and Interest Payments under the PPTA 166
3.2 The PSC Act (CAP D3 LFN 2004) – 168
3.2.1 Qualifying Capital Expenditure under the PSC Regime 169
3.2.2 Collection and Payments Procedure under the PSC 174
3.2.3 Criticisms of the PSC Act – 175
3.3 The Incentives Act – – 176
3.4 Other Fiscal Matters Relating to Upstream Operations – 179
3.4.1 Bonuses – – 179
3.4.2 Fees – – 180
3.4.3 Royalties – – 181
3.4.4 Oil Terminal Dues – – 182

CHAPTER FOUR – FISCAL LAWS RELATING TO DOWNSTREAM OPERATIONS
4.0 Introduction – – 184
4.1 Constituents of Downstream Operations – 186
4.2 Charge to Corporate Income Tax – – 189
4.3 Basis of Assessment – – 199
4.4 Ascertaining Adjusted Profits of Downstream Companies 201
4.4.1 Statutorily Prescribed Allowable Expenses – 202
4.4.2 Ministerial Prescribed Allowable Expenses – 205
4.4.3 Allowable Donations – – 207
4.4.4 Disallowable Expenses – – 208
4.5 Determining the Total Profits of Downstream Companies 212
4.5.1 Treatment of Losses – – 213
4.5.2 Capital Allowances – – 215

xii
4.6 Investment Tax Credit – – 225
4.7 Incentives to Downstream Companies under CITA 2004 227
4.8 Rate of Income Tax of Downstream Companies – 230
4.9 Returns Filing by Downstream Companies – 232

CHAPTER FIVE – AMINISTRATION AND ENFORCEMENT OF THE FISCAL LAWS RELATING TO PETROLEUM OPERATIONS
5.0 Introduction – – 234
5.1 Federal Inland Revenue Service – – 235
5.2 Assessment Function of the FIRS – – 237
5.2.1 Self Assessment – – 238
5.2.2 Government Assessment – – 240
5.3 Collection Procedure – – 243
5.4 Powers in Aid of Enforcement – – 245
5.4.1 Customer Account Information – 245
5.4.2 Right of Access – – 247
5.4.3 Distraint Powers – – 249
5.4.4 Whistle Blower Provision – – 252
5.4.5 Powers of Investigation – – 253
5.4.6 The Role of the Tax Appeal Tribunal (TAT) – 255

CHAPTER XI – SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
6.0 Summary – – 256
6.1 Conclusions – – 280
6.2 Recommendations – – 286
BIBLIOGRAPHY – – – 291

Keywords: AN ANALYSIS OF THE EFFICACY OF FISCAL LAWS RELATING TO PETROLEUM OPERATIONS IN NIGERIA

 


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Keywords: AN ANALYSIS OF THE EFFICACY OF FISCAL LAWS RELATING TO PETROLEUM OPERATIONS IN NIGERIA

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