Tax Talk:Types of Taxes in Nigeria
Petroleum Profit Tax
YBTC NEWS—Just like agriculture in its glorious days, the petroleum industry plays a dominant role in contributing to the Nigerian economy, both in foreign exchange earnings and domestic income generation.
In the tax perspective, an example of petroleum income is the Petroleum Profit Tax. Others are; royalties, rents, oil pipeline and license fees, signature bonuses, penalty from gas flared, NNPC earnings from direct sales, proceeds from local sales of crude oil to NNPC, proceeds from export sales of crude oil and gas etc. But for the purpose of this discourse, our focus is on the Petroleum Profit Tax (PPT).
The Petroleum Profit Tax simply put, is the imposition of tax on the chargeable profits of companies that are engaged in petroleum operations in Nigeria. Petroleum operations as contained in the Petroleum Profit tax Act S.2 refers to “the winning or obtaining oil in Nigeria by or on behalf of a company for its account by any drilling, mining, extracting or other like operations or process, no including refining at a refinery, in the course of a business carried on by the company engaged in such operations, and all operations incidental thereto and any sale of or any disposal of chargeable oil by or on behalf of the company.”
However, save the time the long awaited Petroleum Industry Governance Bill (“PIGB”) will be signed into law, the prevailing law governing taxation of petroleum products are the PETROLEUM PROFITS TAX ACT (PPTA) CAP P13 LFN 2004 and the Petroleum Profits Tax Act, 2007 which emerged after the amendments of the Petroleum Profits Tax Act, Cap.P13 LFN 2004 via the Petroleum Profits Tax (Amendment) Bill, 2005.
The administration of the petroleum profit tax pursuant to section 3 of PPTA is vested in the Federal Inland Revenue Service. Moreover, it is crucial to note that petroleum operations in Nigeria consist both the upstream and downstream. The upstream involves petroleum product exploration, mining and drilling. Downstream refers to the simple sale and distribution of processed oil products by local corporations.
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Hence, corporations engaged in upstream exploration are subject to the PPTA, while downstream corporations are subject to Companies Income Tax Act (CITA), Cap C21, LFN, 2004 (as amended by the CIT (Amendment) Act, 2007).
Meanwhile, the current rate of petroleum profits tax is 50% for operations in the deep offshore and inland basin. While for the onshore and shallow waters, the rate is 85%.
To draw the curtains, the phenomenal dependence on oil has made it unsurprising to see a large proportion of government revenue being sourced from the oil sector, with the petroleum industry generating about 82% income for Federal Government while 18% comes from non-oil revenue.
It is therefore recommended that while tax bodies improve on maximizing the collection and compliance with petroleum profit tax, the government should equally take holistic charge of its responsibilities by developing the oil regions and other sectors of the Nigerian economy for the benefits of Nigerians at large. By so doing, Nigerians will feel the effect of what they are paying for and voluntary compliance will get a boost.
Next week, we’ll proceed on the discussion on the types of taxes with a zoom lens on Companies Income Tax. Till then, we would to receive your questions, comments and contributions.
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