Revised PIB: Tax Rates Reduced

-By Fred Ojiegbe

There seems to be respite for operators in Nigeria’s oil and gas industry as federal government reduced tax rates in the revised petroleum industry bill, PIB, set to be passed into law by the National Assembly.

This was hinted by Mr. Pedro Omontuemhen, a Chartered Accountant and consultant with PricewaterHouseCoopers in his presentation on ‘Structuring the Petroleum Industry Bill for Long Term Oil and Gas Industry Competitiveness in Nigeria’ at the workshop organized by Nigeria Association of Petroleum Explorationists, NAPE. He also explained that the PIB, which had been in the works for about 20 years will now have a total of 72.5 percent (30 percent Company Income Tax, CIT, and 42.5 national hydrocarbon taxes) as against 85 percent/65.7 percent onshore and shallow waters tax rate.

According to Omontuuemhen, that there will be no more Petroleum Profit Tax, PPT, instead, there will be a re-emergence of the hydrocarbon tax at a rate lower than the PPT. “Oil companies will now be liable to the CIT,” he said, adding that there will now be an increased in royalty rates. “No more zero royalty rate for areas beyond 1000 metres depth. Royalty rate will now be based on production terrain by price. As the price grows, royalty also grows,” he said.

He also explained that the Investment Tax Allowance will be repealed, alongside the Petroleum Investment Allowance, PIA, and be replaced with production allowance at a lower rate of $2.50 per barrel of fiscal oil price of Grandfather contract. “But for new production, production allowance will be $8 per barrel and 20 percent of the fiscal oil price,” he said. He added that investments in the sector had dropped 18 percent year-on-year to the tune of $30 billion due to delay in passage of the PIB. “The tax rate in Nigeria is really high. At a point, even the royalty rate was higher. The major motive behind the PIB is that government wants to increase its take. So if you look at all the funds set up, royalties, taxes versus what we currently have, I think the total government take in the new PIB may be higher than we currently have. That is something we need to engage with government to make sure players won’t be discouraged,” he said. “There’s need for a clear regulatory framework,” he added.

Earlier, the Minister of State for Petroleum Resources, Timipre Sylva had said the current PIB will be passed into law by March 2021.

Non-passage of the PIB has cost Nigeria about $15bn in revenue annually, Ibe Kachikwu, immediate past Minister of State for Petroleum Resources NNPC estimated back in 2015. “The delays mean that revenues that would accrue to the country as a result of the bill will take additional time to come due,” Joachim MacEbong, Senior Analyst at SBM Intelligence tells Petroleum Economist, while noting that “the government is seriously struggling for revenue”. “The oil market is more competitive now than it has ever been… and future trends for the oil industry do not look too good because a number of developed countries have set ambitious targets for reduced greenhouse emissions,” ¬MacEbong said.

The PIB has indeed come a long way. It was first introduced to the National Assembly in December 2008, during the administration of former President Olusegun Obasanjo. A presidential committee set up in 2007 to look into the oil and gas sector came up with this bill, which aimed to increase transparency at the NNPC and to increase Nigeria’s share of oil revenue. Drafts of the bill, however, became very contentious due to objections from the international oil companies (IOCs) and the Nigerian National Petroleum Corporation (NNPC).

Consequently, the bill was never passed into law. Towards the end of 2015, the PIB was amended to speed up its passage and was broken into different bills, one of which was the PIGB, to address the governance framework of the oil industry. The then Senate leadership noted that the plan was to expedite the aspects of the old law that were not controversial while the controversial areas could be placed on hold. The two houses passed the PIGB in 2018 but the President did not sign the bill till it ran out of time.