20 Jan



Petroleum is a huge income earner for the government. The Regulation of Petroleum Profits is provided for by the Petroleum Profits Tax Act 1959 which has 11 parts, 63 sections and 3 schedules.

The Administration of Petroleum Profit is vested on the FIRS which was established under Section 1 of the FIRS Establishment Act 2007. They are granted various powers under Section 3 PPTA. The board may call for the companies books of accounts, returns and other information to better assess them and levy the tax-Section 31 and 32 PPTA. Section 34-40 deal with issues relating to assessment of persons.

The preamble to the FIRSEAct provides that it shall collect, assess and account for revenue accruing to the Federal Government[1]

The NNPC shall collaborate with FIRS in the administration of petroleum profits tax.

By Section 80(1) of the 1999 constitution, such monies should be credited into the Consolidated Revenue Fund.

Double Taxation Agreements can reciprocally be entered into with foreign sovereign states to prevent a company from being taxed more than once (that is in State A and State B).

Section 21 provides for the rate of tax thus; “the assessable tax for any accounting period of a company shall be an amount equal to 85% of its chargeable profits of that period.

This PPTax applies to companies engaged in petroleum operations during the accounting period. Note that the accounting period starts from first January to 31 December[2].

Note that “petroleum operation” (as defined in Section 2 of the Petroleum Profit Tax Act) includes: “the winning or obtaining and transportation of petroleum or chargeable oil in Nigeria by or on behalf of a company for its own account by any drilling, mining, extracting or other like operations or process, not including refining at a refinery, in the course of a business carried on by the company engaged in such operations, and all operations incidental thereto and any sale of or any disposal of chargeable oil by or on behalf of the company”. The same interpretation was given in Shell V FBIR.

This leads us to the division of petroleum operations into downstream and upstream operations for the purpose of determining chargeability.

Picture this in your head: someone bringing petroleum up from the ground (this is the “up”Stream operation… bringing it UP. On the other hand: Someone selling it out to the people… distributing it… letting it flow “down”stream. Look at the definition in Section 2 above. The “winning, obtaining, transportation….drilling, extracting” Is “upstream” while the “refining, disposal (like sale in a filling station)” “is downstream”.

The Petroleum Profits Tax Act applies to “upstream” petroleum activities while the Companies Income Tax Act applies to downstream petroleum operations-Gulf Oil V FBIR. In Gulf Oil V FBIR, the court held that the transportation of crude oil is part of petroleum operations and was chargeable under the PPTA. Same was held in Shell V FBIR.

Section 9[3] provides for certain considerations to be taken into account in determining the profit Section 10[4] PPTA, certain expenses can be deducted. Expenses like rents, royalties, sums incurred to the FG by way of customs and excise, and other outgoings and expenses incurred exclusively and necessarily-Shell V FBIR*. There is also incentive granted under Section 11 for companies that utilise the natural gas. Certain deductions are disallowed under Section 13. E.g. depreciation, tax liability, etc. furthermore, Section 15 PPTA entitles the board to disregard artificial transactions carried out by the company to evade tax payment.

In addition to tax under the PPTA, there are other Legislations which impose financial obligations on the Oil Companies some of which include: Petroleum (Drilling and Production) Regulations[5], the Petroleum (Drilling and Production) (Amendment) Regulations of 1996, Nigerian LNG Fiscal Incentives Guarantees and Assurances Act; the Nigerian Export Free Zone Act; the Education Tax Act; Value Added Tax Act; the Offshore Oil Revenue (Registration of Grants) Act; the Deep Offshore Inland Basin Production Sharing Contracts Act; the Associated Gas Re-Injection Act; the Oil Terminal Dues Act; Pollution Compensation Law (Bayelsa) of 1998 the Economic Development Levy Law of Delta State, etc.


[1] See also Section 8 FIRSEA.

[2] See Section 2 PPTA.

[3] Section 9 provides (1) Subject to any express provisions of this Act, in relation to any accounting period, the profits of that period of a company shall be taken to be the aggregate of- (a) the proceeds of sale of all chargeable oil sold by the company in that period; (b) the value of all chargeable oil disposed of by the company in that period; and (c) all income of the company of that period incidental to and arising from any one or more of its petroleum operations…”.

[4] Section 10 provides: (1) In computing the adjusted profit of any company of any accounting period from its petroleum operations, there shall be deducted all outgoings and expenses wholly, exclusively and necessarily incurred, …, during that period by such company for the purpose of those operations, including… (a) rents… (b) all non-productive rents… (c) all royalties… in respect of natural gas sold and actually delivered… (d) all royalties the liability … in respect of crude oil or of casing head petroleum spirit won in Nigeria; (e) all sums the liability for which was incurred by the company to the Federal Government of Nigeria during that period by way of customs or excise duty or other like charges (f) sums incurred by way of interest upon any money borrowed by such company… (g) all sums incurred by way of interest on any inter-company loans obtained under terms prevailing in the open market… (h) any expense incurred for repair of premises, plant, machinery, or fixtures employed for the purpose of carrying on petroleum operations or for the renewal, repair or alteration of any implement, utensils or articles so employed; (i) bad debts…

[5] A subsidiary legislation made pursuant to Section 9 of the Petroleum Act


Quite eccentric really

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