Nigerian Government Aims for 214% Surge in Oil Sector PPT Revenue in 2024.
The Nigerian Federal Government has set an ambitious goal for 2024, eyeing a remarkable 214% increase in Petroleum Profit Tax (PPT) collections from the oil sector.
This bold target, as per data from the Federal Inland Revenue Service (FIRS), is aimed at achieving a revenue of N9.96 trillion from PPT, marking a significant leap from the N3.17 trillion generated in 2023. It also represents an 89% increase over the initial projection of N5.26 trillion for the same year.
The Petroleum Industry Act (PIA) introduced substantial fiscal reforms to address challenges posed by fluctuating oil prices on the profitability of oil and gas operators. Under the new tax framework, the PPT was phased out, and the Hydrocarbon Tax (HT) was introduced, focusing on crude oil, condensates, and natural gas produced from associated gas in onshore and shallow waters. Notably, the reform excludes associated and non-associated natural gas, as well as exploration in frontier acreages.
The HT imposes varying tax rates based on the type of license held. Operations in onshore and shallow waters with converted Petroleum Mining Licenses (PMLs) will be taxed at a rate of 30%, while those with converted Petroleum Prospecting Licenses (PPLs) will face a lower rate of 15%.
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Furthermore, the PIA mandates that companies engaged in upstream activities, including those in deep offshore regions, upstream gas, and midstream and downstream sectors, will be subject to the Companies Income Tax (CIT) at a standard rate of 30%. This adjustment reduces the maximum income tax rate for oil and gas companies to 60%, down from the previous 85% under the Petroleum Profits Tax Act (PPTA).
These revised fiscal terms will come into effect upon the conversion of existing Oil Prospecting Licenses (OPLs) and Oil Mining Licenses (OMLs) to PPLs and PMLs, respectively, as well as upon expiration, termination of unconverted leases, or the renewal of OMLs. The restructuring aims to enhance the adaptability and financial viability of Nigeria’s oil and gas sector amid global oil price fluctuations.
Thus, the PPT figure encompasses HT and CIT from operators in the oil and gas sector.
Challenges Faced in 2023:
In 2023, the Federal Inland Revenue Service (FIRS) encountered difficulties in meeting its PPT collection targets, achieving only approximately 60% of its projected goal. This shortfall positioned PPT as one of the least successful tax categories for the agency, ranking it at the lower end of the performance spectrum.
The FIRS attributed the failure to meet its 2023 PPT target to factors such as lower production rates compared to budget estimates, conversion of some deep offshore Production Sharing Contract (PSC) Oil Mining Licenses (OMLs) to Petroleum Mining Licenses (PMLs) under PIA terms, and arrears from the Nigerian National Petroleum Corporation (NNPC).
Persistent Revenue Challenges:
The Federal Government has consistently fallen short of its revenue targets from the oil sector, indicating ongoing underperformance. This trend continued from 2022, where the sector achieved only 35.4% of its revenue goal, to 2023, where approximately 60% of the target was met.
Insights and Challenges:
The Nigerian oil sector, crucial to the country’s economy, faces significant challenges, prompting extensive discussions and actions both nationally and internationally.
Recent data from the National Bureau of Statistics (NBS) revealed a concerning trend as foreign investors sidelined the Nigerian oil and gas industry in the second quarter of 2023, marking the first time on record that the sector attracted no capital inflow. This poses a significant challenge as approximately 62% of the Nigerian economy depends on the oil and gas sector, a major source of government revenue.
In response to issues such as oil theft, the Speaker of Nigeria’s House of Representatives established a Special Ad Hoc Committee to investigate pipeline vandalism, illegal oil bunkering, and theft. These criminal activities cost Nigeria over 300,000 barrels of crude oil daily, resulting in an annual financial loss of N1.29 trillion.
Additionally, the escalating Russia-Ukraine conflict has prompted European countries to seek alternative oil sources. However, Nigeria’s challenges in fulfilling oil contracts have deterred these nations from turning to the country, exacerbating the sector’s struggles.
Despite a 0.85% contraction in the oil sector’s GDP in Q3/2023, there’s a slight improvement from previous quarters, attributed to efforts by the current administration to improve conditions in the Niger Delta, engage with oil operators, and create a more attractive investment climate in the sector.
Looking Ahead:
For 2024, the Federal Government has set a cautious oil price benchmark of $77.96 per barrel and a production estimate of 1.78 million barrels per day (mb/d). However, achieving this target may prove challenging given production cuts enforced by OPEC and its allies.
In conclusion, Nigeria’s oil sector faces ongoing challenges, requiring revitalization efforts and reforms from the administration under Bola Tinubu to navigate through this critical period effectively
