The Nigerian Federal Government has set its sights on a significant revenue boost from the oil sector in 2024, aiming for a staggering 214% increase in Petroleum Profit Tax (PPT) collections.
This ambitious target is outlined in data from the Federal Inland Revenue Service (FIRS), which indicates plans to rake in N9.96 trillion from PPT.
The proposed figure marks a substantial leap of 214% from the N3.17 trillion generated in 2023 and represents an 89% hike over the initial projection of N5.26 trillion for the same year.
The Petroleum Industry Act (PIA) introduced significant fiscal reforms in response to the challenges posed by falling oil prices on the profitability of oil and gas operators. Notably, the Act phased out the Petroleum Profits Tax (PPT) and introduced the Hydrocarbon Tax (HT), targeting crude oil, condensates, and natural gas produced from associated gas in onshore and shallow waters. This new tax framework specifically excludes both associated and non-associated natural gas as well as exploration in frontier acreages.
Under the HT, tax rates will vary based on the type of license held. For operations in onshore and shallow waters, converted Petroleum Mining Licenses (PMLs) will be taxed at a rate of 30%, whereas converted Petroleum Prospecting Licenses (PPLs) will see a lower rate of 15%.
Furthermore, the PIA mandates that companies engaged in upstream activities, including those operating in deep offshore regions, upstream gas, and both midstream and downstream sectors, will be subject to the Companies Income Tax (CIT) at a standard rate of 30%. This adjustment sets the maximum income tax rate for oil and gas companies at 60%, a marked decrease from the previous 85% under the Petroleum Profits Tax Act (PPTA).
The application of these revised fiscal terms will be triggered by the conversion of existing Oil Prospecting Licenses (OPLs) and Oil Mining Licenses (OMLs) to PPLs and PMLs, respectively, as well as upon the expiration, termination of unconverted leases, or the renewal of OMLs. This overhaul in the taxation structure is aimed at making the Nigerian oil and gas sector more adaptable and financially viable amidst the fluctuating global oil prices.
Therefore, the PPT figure covers HT and CIT from operators in the oil and gas sector.
