It is not gain, saying that Nigeria is the 6th largest producer of crude oil with proven oil reserves exceeding nine billion tons and the largest hydrocarbon feedstock producers in Africa, and ranks twelfth worldwide.
The country relies heavily on its petroleum industry for economic growth – the sector accounts for about 80 percent of government revenues and providing 95 percent of foreign exchange. Despite all these, Nigeria has over the years been denied its fair share of adequate revenue from the oil and gas.
Nigeria also is blessed with abundant natural resources of various types. A report by Civil Society Legislative Advocacy Centre (CISLAC) “Maximizing Tax Revenue from the Extractive Industries”, estimated that Nigeria has over 500 mineral deposits sites of over 34 different minerals across the country. These include gold, coal, tin, columbite, bitumen, diamonds, and precious stone of various degrees.
Of all the resources, 100 are common, 50 are occasional and others are extremely rare. It would be important not to be carried away by these, but the extent at which Nigeria effectively harness the present common resources to provide for the basic needs of the citizens.
Though the principal objective of every fiscal policy is to ensure the government receives the best share of revenue from resources, however, Nigeria records no significant rise in revenue during periods of increased profitability.
As revealed by the 2014 Nigerian Natural Resource Charter (NNRC), “The fiscal regime does not ensure that the government receives a rising share of revenues during periods of increased profitability as the fiscal terms in the contracts covering almost all of Nigeria’s oil production.
“The fiscal regime does not ensure that the government has a minimum revenue stream in all production periods, with the exception of signature bonuses and royalties except for deep-water operation under the 1993 PSC contract, for which royalty is zero. The fiscal regime does not provide robustness to changing circumstances as it often requires the government and IOCs to re-negotiate when circumstances change, and many previously agreed contractual terms are still under dispute.
The principal legislation governing petroleum operations in Nigeria is the Petroleum Profits Tax Act of 2007. Its major fiscal instrument is the Petroleum Profit Tax, a resource rent which focuses on profitability. This tax according to 2014 NNRC Report “is considered progressive as it taxes only increase in profitability with Net Present Value (NPV) threshold rate calculation. Under the PPT, the tax rate is set at 67.5% for the first five years of taxable operation by the company and 85% thereafter.
“According to industry experts, extensive revenue losses persist due to weak cost regulation. At the time of signing the 1993 PSC, the conditionality for petroleum products including industry cost for production was low. Till date, the country is yet to overhaul the fundamental strategy components that will address contemporary market conditions.”
In order to promote transparency and accountability in the management of revenues from oil, gas and mining sectors, Nigeria took a bold step with the creation and legal strengthening of the Nigeria Extractive Industries Transparency Initiative (NEITI) in 2004, when it signed on to the Extractive Industries Transparency Initiative (EITI), a global initiative aimed at ensuring that resources from the extractive industries contribute to poverty reduction and sustainable development.
Assessing the achievements of NEITI since it was adopted in Nigeria, Madeline Young, a Financial Nigeria columnist, wrote, “Nigeria can be proud that it was among the first of 45 member nations to enact formal legislative framework for EITI (NEITI Act of 2007).”
Fiscal policies remain the fundamental principles which guide the orderly development of tax laws and administration, and lays basis for the formation of the whole tax system. Inconsistent tax policies would create chaos in the entire system. Thus, it has become imperative to fast-track the passage of Petroleum Industry Bill (PIB) presently lying dormant before National Assembly to reform legal frameworks on the Petroleum and Tax Policy.
Apart the PIB, government has promulgated various legislative frameworks to regulate taxation of the extractive sector and ensure maximum tax revenue accrues to the government. Among these are 1999 Constitution of the Federal Republic of Nigeria, Companies Income Tax Act, NEITI Act, Mineral and Mining Act of 2007, Companies Income Tax Act Cap C21 Laws of Federation of Nigeria 2004, Petroleum Profit Tax Act Cap P13 Law of Federation of Nigeria, Federal Inland Revenue Service Act Cap F36 Laws of the Federation of Nigeria, Value Added Tax Act Cap V1 Laws of Federation of Nigeria 2004, Deep Offshore and Inland Basin Production Sharing Contract Act Cap D3 Laws of the Federation of Nigeria 2004.
Harnessing extractive revenue for the maximum benefit of citizens requires enhanced public accountability through reducing government’s influence on NEITI’s actions and audit reports; and civil society oversight to promote NEITI’s objectivity and increase its independence from the public administration.
Formulating and adopting effective measures by all levels of government to address the identified challenges resulting in leakages in revenue has become essential. This includes timely reviewing and strengthening of the existing laws, giving serious consideration to speedy dispensation of tax disputes and evasion prosecution.
It is important to put in place appropriate record keeping by mandated agencies to track production data and financial inflows to enable government make informed decision and independent assessment of the extractive companies; and appreciable efforts to curb illegal mining, oil bunkering and systemic corruption.
It is important to fast-track the passage of the Petroleum Industry Bill to harmonise loose frameworks regulating taxation of extractive industry and simplify the collection of government revenues for maximum realization of tax revenue.
Giving the vast number of extractive industries and the presence of various types of minerals in different part of the country, decentralizing the power to regulate the mineral whose exploitation does not exceed beyond certain threshold is crucial to ensure efficient regulation, proper monitoring and effective data storage to fortify appropriate taxation.
Adequate support for the host communities to facilitate the utilization of licenses granted mining industries by the federal government through execution of Memorandum of Understanding between the mining industries and the host communities.
Furthermore, sufficient provision for Federal Inland Revenue Service to promote sustainable tax reform through effective training and retraining programmes, motivation, adequate funding and operational equipment for staff of various department dealing with taxation of extractive industry as well as administrative and legislative response to address the current anomalous arrangement insulating FIRS from direct dealing with accruable tax from extractive sector.
Abubakar Jimoh is Communication and Information Officer at Civil Society Legislative Advocacy Centre (CISLAC), Abuja; [email protected]