Tax Implications for Oil and Gas: It is an established fact that crude oil dominates Nigeria’s economy in terms of revenue. It accounts for about 86% of the country’s foreign exchange earnings, although it only contributes less than 10% to the country’s Gross Domestic Product (GDP).
Developments in the sector have substantial impact on Nigeria’s economy. This is why successive governments have remained focused on the sector despite various discussions on diversifying the economy.
The initiative to reform the Oil Sector was first taken by the Chief Olusegun Obasanjo administration who in April, 2000, inaugurated the Oil and Gas Reform Implementation Committee, with a mandate to review and streamline all existing Petroleum Laws and establish an all-inclusive regulatory framework for the industry. The first Executive Bill on the Petroleum Industry Bill (PIB) was in 2008 and ever since, Nigeria has been working to improve transparency and accountability in the Oil Sector.
Nigeria is ranked as one of the largest suppliers of crude oil in Africa, however, notwithstanding this position, the country has been unable to significantly translate its oil wealth into sufficient national development. Several factors have brought about this outcome, which has ultimately resulted in declining investments and returns in the industry.
On the 1st of July, 2021, the National Assembly passed the Petroleum Industry Bill (PIB), and on the 16th of August, 2021, the Bill was assented to by the President.
The Petroleum Industry Act (The Act), 2021 (PIA) seeks to introduce far-reaching reforms in the Nigerian Oil and Gas Industry aimed at establishing good governance, best practices, and the ease of doing business by clarifying roles and responsibilities of officials and institutions, enabling frontier exploration, improving environmental compliance, and transforming the Nigerian National Petroleum Corporation (NNPC) into a commercially viable enterprise.
This piece introduces the PIA by briefly looking at the administration of the Sector, the regulatory changes, the transformation of NNPC, the Fiscal Regime, the host community development, licenses and leases, and other highlights, but most particularly, the focus is on the new tax regime under the Act and how it affects players and non-players in the Oil & Gas Sector.
The following are the notable provisions of the Act: