By Milcah Tanimu

The Nigerian Federal Government has set an ambitious target for revenue generation from the oil sector in 2024, aiming for a remarkable 214% increase in Petroleum Profit Tax (PPT) collections.

Data from the Federal Inland Revenue Service (FIRS) reveals the government’s plan to amass N9.96 trillion from PPT, marking a substantial leap from the N3.17 trillion generated in 2023. This proposed figure also 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 to address 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. However, 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 vary based on the type of license held, with operations in onshore and shallow waters subjected to a 30% tax rate for converted Petroleum Mining Licenses (PMLs) and a lower rate of 15% for converted Petroleum Prospecting Licenses (PPLs).

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 significant decrease from the previous 85% under the Petroleum Profits Tax Act (PPTA).

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. The overhaul in the taxation structure aims to enhance the adaptability and financial viability of the Nigerian oil and gas sector amid fluctuating global oil prices.

However, the oil sector faced challenges in tax performance in 2023, with the FIRS achieving only around 60% of its projected PPT collection target. The agency attributed this shortfall to factors such as lower production compared to budget estimates, the conversion of some deep offshore PSC OMLs to PMLs under PIA terms, and arrears from the Nigerian National Petroleum Corporation (NNPC).

Despite these challenges, the Federal Government remains committed to revitalizing the oil sector, which plays a critical role in Nigeria’s economy. With cautious targets set for 2024 amidst ongoing global uncertainties, including production cuts enforced by OPEC and its allies, the government aims to navigate the sector toward sustainable growth and revenue generation.