…Organisations should commoditize operations by reducing overlapping taxes, create opportunities to take advantage of incentives that the government has tried to put forward in order to attract increased performance in business opportunities within the upstream.
…Interface between NTA and PIA helps to position the country for better investment in the petroleum sector.
-Felix Douglas
The Centre for Petroleum Information (CPI) had its Oil & Gas Law Forum with the theme: Nigeria Tax Act (NTA) 2025 and the Petroleum Industry Act (PIA) 2021: Understanding Interface and the Changes.
Legal experts deliberated on the issue on how it affects the oil sector with regards to tax laws.
Theophilus Emuwa, Founding Partner, AELEX Law gave his views on the interface and what has changed.
According to Emuwa, NTA was sold as an idea to consolidate all laws into one place with the PIA.
In the NTA, there are three regimes while the idea behind the PIA was to consolidate an avenue of one regime for the oil industry.
The NTA has created three-way arrangement, probably because it had to recognize that there were many companies that had not yet transitioned to PIA regime.
Stating further, Emuwa said another point being mentioned was that NTA provides for hydrocarbon tax to be levied on offshore sector. There’s drafting errors in the content which should be resolved to avoid disputes between taxpayers and revenue.
In 2027, people will start filing tax returns based on this year’s new NTA. There’s is also a section in the NTA which suggests that HCP will apply to deep offshore, but it depends on the rate of tax.
In the changes of interface between PIA and NTA, an MoU between oil company and government could be arrived at. There was a negotiation as to what the realizable price might be, but PIA will determine the price.
He added that there should be an open market price, but the law allows it to be applied and additional tax is payable. Many companies move products from operating exploration and production to a marketing entity.
In terms of privacy, there’s another gap in the legislation, while the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), sets price for companies that are in the PIA, those that are still UDT regime for deep offshore, the price is based on what’s the production contract or mechanism of sharing contract should be.
Emuwa pointed out that it’s not NUPRC that sets a price for deep offshore operators but it creates good quality consistency which means there’s room for arbitrary decisions.
Expenses are deductible from profits before revenue to determine taxable profit. The PIA and NTA have introduced certain changes in what can be deducted, for instance, interest and finance charges are not deductible.
Head office costs are subject to health insurance before they can be deducted, but on the other hand, decommissioning and abandonment contributions have become deductible prior to PIA they were not, it was not clearly set out which was an issue for the industry.
Although money can be set aside for future commissioning and environment. There’s also a provision about PHC and default duty. Another interesting point is that when an asset is sold to another company, there’s cost basis.
Emuwa stated that there were provisions for industry players in 2020 in relation to deep offshore to provide incentives to encourage gas project and if projects were done before there are various amounts which could be claimed.
However, they have been transitioned into NTA in 2024 based on professional mix of interest.
Another area of concern has to do with capital gains tax. Before 2026, if an asset is sold, capital gains tax was 10% of the gain in the deal in the oil industry.
There are a number of interesting points that should be observed if a law is amended, filing tax returns will be applied.
“If you want to appeal an assessment, you need to pay some of the tax before you can even appeal.”
Navigating Tax Uncertainty
Olumide Esan, Partner and E&C Leader, Deloitte West Africa, presented a paper on Ensuring Compliance and Practical Suggestions, “how do we navigate this new world of plenty of uncertainties created by it?”
Esan is the energy resources activator for Deloitte in Africa and head of energy resources across West Africa.
He spoke about reforms applications framework and practical emerging issues including support for BTS.
The Deloitte helmsman submitted his position on NTA and the President’s focus on law that fosters economic investment which enables space expansion, revenue mobilization, digitization and tax administration for global best practices.
Basically, PIA advocated tax regime with hydrocarbon which also exist in other parts of the world and different countries have their various rules. Nigeria hydrocarbon tax is treated as a separate tax.
There are different contracts with slight modification, for instance, gas operations require that operators pay monthly installments just the same way they are doing for oil.
Investment in upstream, downstream and midstream companies in financial gas spaces, pay estimated tax liabilities irrespective of operations on some key changes which enhanced compliance.
Esan made it known that in section 129, there are two sets of penalties for underpayment.
If you default by one naira payment, the penalty is first 10% of the default amount and in addition, 10 million naira for the first day of default.
Also, there will be 2 million naira for every single day of default.
“If you look at that over a six year period, then you will be looking at the penalty of 5 billion naira over a one naira default. That’s essentially what the new law based on 5 billion naira for a default that happened six years ago.”
The new administration is done by Nigeria Revenue Service (NRS).
The country has one Tax Act which has been consolidated in petroleum operations.
He added that Value Added Tax (VAT) provides an expense for capital expenditure. Non compliance issues provide basis for license revocation. This is how difficult NTA applies compliance issues if a company defaults.
He spoke on the aspect of global Integrated Strategy Project (ISP) which services the Nigerian economy. Part of the advantages of the PIA is that a company can own an oil field across the value chain.
There has to be an aligned accounting and tax reporting system including corporate and financing structure.
Esan encouraged companies and organizations to develop solutions and capacity building.
On the aspect of capital gains, the rate has been increased since 2013 but it is in favour of the taxpayers. Previously, if there is a divestment, which is an asset deal, tax will be paid which is called drawback capital allowances.
Although the new version with the National Assembly has a lot of gaps but work is in progress.
Response from Reactor Panel
Reacting on NTA/PIA brouhaha Folasade Akinmusire, Company Secretary, Nestoil, opined that what practitioners in the industry should be focusing on is tax governance.
The government has created an enabling environment and increase tax.
She said focus for business evaluation in the industry depends on multilayered regimes within the sectors.
Taxis have become major issues and lawyers need to prepare tax framework that should be adopted within their organisations and incentives available, Akinmusire added.
She advised organisations to commoditize operations by reducing overlapping taxes, create opportunities to take advantage of incentives that the government has tried to put forward in order to attract increased performance in business opportunities within the upstream.
“Be intentional about tax framework, deductibles incentives optimization. Otherwise, you will not survive, because there is no place to hide.”
Adding his voice to NTA/PIA, Sina Sipasi, Partner AELEX Law reacted on how NTA interacts with PIA.
Sipasi spoke on the policy cohesion in the drafting of PIA and general direction of Nigeria in terms of climate change.
“Concerning the argument of climate change and conversation between the developed world and developing nations, especially Africa, one of the initiatives championed by Nigeria is that the country and its counterparts will work towards achieving energy transition using gas as transition of fuel.”
He said this direction was acknowledged in the PIA by looking at dedicated gas licensing framework with a number of provisions that deals with it.
He added that gas utilization should be encouraged in Nigeria.
Sipasi believed that NTA provides better and greater policy.
There are also provisions in the NTA that shift Nigeria from an oil mindset to a gas transition model that will help to implement Nigerian climate change approach.
NTA has properly codified gas forecast incentives, clearly highlighted anti-flaring provision and differentiated hydrocarbon tax treatment for crude tax with some fiscal support for lower emission.
The provision also affect petrol development that is focused on meeting greenhouse gasses.
Sipasi made it known that section 65, 80, 85, and 93 try to highlight or modify incentives that government had granted. These incentives have been properly codified in the NTA.
However, taking a look at the NTA, there is climate change policy with a high degree of cohesion. There’s still work to be done, but government policy brings together in different legislation to implement policy.
Notwithstanding, the Iran war is an eye opener for the world not to depend on fossil fuels alone.
Sope Falana, Senior Associate, Jackson, Etti & Edu (Law Firm), made her point on how the interface between NTA and PIA helps to position the country for better investment in the petroleum sector.
Whilst the NTA itself has friendly taxpayer provisions with number of incentives and opportunities for tax allowances and credit, there still appears sticky points with gaps. There are things that may work for the taxpayer and might not work for the taxman.
Looking at the journey up till 2021, Falana cautioned that in making provisions or decisions on fiscal matters for the oil and gas sector, Nigeria should tread carefully.
There should be a rule of government approach to fiscal matters in the petroleum industry.
The petroleum industry contributes largely to Nigeria’s economy and there ought to be level of collaboration.
Falana called for good provisions and incentives in government approach to fiscal matters for players in the industry and some form of policy position in terms of clean energy.
She called for collaboration between NRS, NUPRC and NMDPRA, so the country does not retrogress into Pre-PIA era.
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