Nigerian Petroleum Bill Would Sharply Increase Tax Revenue

by Lorys Charalambous, Tax-News.com, Cyprus

04 February 2010

The Nigerian National Petroleum Corporation (NNPC) has revealed that, if the proposed Petroleum Industry Bill (PIB) were to be passed into law by Nigeria’s parliament, the federal government stands to gain some USD300bn in additional tax revenue annually.

The PIB would provide a new legal and regulatory framework for the industry as a whole. However, one of its main objectives is also to increase federal revenue, particularly from the profitable oil fields in deep offshore waters which are mainly operated by the oil majors.

By eliminating some cost deductions, the PIB would provide the possibility to establish the same basis for the calculation of both royalties and the hydrocarbon and corporate income taxes. Then, it was said, the royalty system would have two sliding scales – one relating to the daily production of the oil or gas field, and the other, price sensitive, being related to the oil or gas price.

The NNPC informed participants at a workshop in Abuja, to explain the workings of the PIB, that it would also provide additional revenue through joint ventures and production sharing contracts.

Overall, it was said, it is projected that the PIB would more than double the government’s percentage collections from fields in deep offshore waters, while, on the other hand, the burden of taxation would be reduced, in some cases, for the less profitable onshore or shallow water fields to encourage their further development.

However, while negotiations are still continuing with the multinational oil companies operating in offshore waters, the increased projected revenue take, almost wholly from their fields, goes a long way to confirming their previous warnings of the high price to them of the prospective reforms, and their possible effect on future investment.

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