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Questions and Answers
What is excluded from costs for purchasing information on petroleum deposits?
What is excluded from costs for purchasing information on petroleum deposits?
What is not a cost incurred for operations?
What is not a cost incurred for operations?
What is an example of a payment to a society?
What is an example of a payment to a society?
What is included in costs incurred outside of Nigeria?
What is included in costs incurred outside of Nigeria?
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What is an example of a tax?
What is an example of a tax?
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What is included in penalties?
What is included in penalties?
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What type of entities are excluded from hydrocarbon tax?
What type of entities are excluded from hydrocarbon tax?
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How are companies engaged in upstream petroleum operations as a partnership or joint venture charged for hydrocarbon tax?
How are companies engaged in upstream petroleum operations as a partnership or joint venture charged for hydrocarbon tax?
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What is required for calculating hydrocarbon tax?
What is required for calculating hydrocarbon tax?
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Who is subject to hydrocarbon tax?
Who is subject to hydrocarbon tax?
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What type of operations are subject to hydrocarbon tax charges and payments?
What type of operations are subject to hydrocarbon tax charges and payments?
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What is the purpose of the schedule displaying the total production allowance from upstream petroleum operations?
What is the purpose of the schedule displaying the total production allowance from upstream petroleum operations?
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What is the scope of the law under the PPTA?
What is the scope of the law under the PPTA?
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What is the rate of tax for PSCs under the PPTA?
What is the rate of tax for PSCs under the PPTA?
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What is the guideline for allowable deductions under the PIA?
What is the guideline for allowable deductions under the PIA?
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What is not an allowable deduction under the PPTA?
What is not an allowable deduction under the PPTA?
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What is the applicable regulation for Transfer Pricing under the PIA?
What is the applicable regulation for Transfer Pricing under the PIA?
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Where are appeals from the Act referred to under the PIA?
Where are appeals from the Act referred to under the PIA?
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What is the deadline for an existing company to submit its audited accounts and returns?
What is the deadline for an existing company to submit its audited accounts and returns?
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What must be presented along with the particulars of an actual and complete declaration?
What must be presented along with the particulars of an actual and complete declaration?
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What is the deadline for a new company to submit its audited accounts and returns?
What is the deadline for a new company to submit its audited accounts and returns?
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Who must sign the declaration of an actual and complete declaration?
Who must sign the declaration of an actual and complete declaration?
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What is the deadline for submission of audited accounts if the term ends on December 31?
What is the deadline for submission of audited accounts if the term ends on December 31?
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What is the purpose of submitting audited accounts and returns?
What is the purpose of submitting audited accounts and returns?
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What is the purpose of a petroleum host community development trust?
What is the purpose of a petroleum host community development trust?
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What type of data acquisition is excluded from the cost of data for petroleum deposits?
What type of data acquisition is excluded from the cost of data for petroleum deposits?
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What triggered the application of price-based royalties in Nigeria?
What triggered the application of price-based royalties in Nigeria?
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What is the basis for calculating royalties in Nigeria before the revision of the DOIBSPSCA in 2019?
What is the basis for calculating royalties in Nigeria before the revision of the DOIBSPSCA in 2019?
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What is the purpose of gas flare fees and penalties?
What is the purpose of gas flare fees and penalties?
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What is the deadline for submission of audited accounts and returns for a company that has not yet commenced bulk sales or disposal of chargeables?
What is the deadline for submission of audited accounts and returns for a company that has not yet commenced bulk sales or disposal of chargeables?
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What must be presented along with the particulars of an actual and complete declaration?
What must be presented along with the particulars of an actual and complete declaration?
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What is the deadline for submission of audited accounts and returns for an existing company?
What is the deadline for submission of audited accounts and returns for an existing company?
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Who is responsible for signing the declaration of an actual and complete declaration?
Who is responsible for signing the declaration of an actual and complete declaration?
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What determines the deadline for submission of audited accounts and returns if the term ends on December 31?
What determines the deadline for submission of audited accounts and returns if the term ends on December 31?
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What happens if the deadline for submission of audited accounts and returns falls on a later date than the end of the term?
What happens if the deadline for submission of audited accounts and returns falls on a later date than the end of the term?
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What is the purpose of submitting audited accounts and returns?
What is the purpose of submitting audited accounts and returns?
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How often must a company submit its audited accounts and returns?
How often must a company submit its audited accounts and returns?
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What happens if a company fails to submit its audited accounts and returns on time?
What happens if a company fails to submit its audited accounts and returns on time?
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What is the importance of submitting audited accounts and returns in a timely manner?
What is the importance of submitting audited accounts and returns in a timely manner?
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Late filing attracts a penalty of N10,000 for the first day and N2,000 for every subsequent day.
Late filing attracts a penalty of N10,000 for the first day and N2,000 for every subsequent day.
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The cost of gas reinjection is treated under CITA.
The cost of gas reinjection is treated under CITA.
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Royalties on onshore fields attract a flat rate of 18.5%.
Royalties on onshore fields attract a flat rate of 18.5%.
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The Petroleum Investment Allowance covers expenses incurred outside Nigeria.
The Petroleum Investment Allowance covers expenses incurred outside Nigeria.
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Production allowance is pegged at a certain percentage per barrel for gas production.
Production allowance is pegged at a certain percentage per barrel for gas production.
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Unclaimed costs can be carried forward to the next assessment year.
Unclaimed costs can be carried forward to the next assessment year.
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The penalty for late filing is N10,000 for every subsequent day the offence persists.
The penalty for late filing is N10,000 for every subsequent day the offence persists.
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Multiple regulatory agencies are responsible for regulating petroleum operations.
Multiple regulatory agencies are responsible for regulating petroleum operations.
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Royalties on offshore production vary from 7.5% to 15% depending on water depth.
Royalties on offshore production vary from 7.5% to 15% depending on water depth.
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Cost Price Ratio Limit of 65% does not impact the total allowable deductions in determining the chargeable profit.
Cost Price Ratio Limit of 65% does not impact the total allowable deductions in determining the chargeable profit.
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What is the maximum percentage of Cost Price Ratio (CPR) set under the new PIA terms?
What is the maximum percentage of Cost Price Ratio (CPR) set under the new PIA terms?
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Which agency is responsible for collecting hydrocarbon tax, corporate income tax, and education tax from the oil and gas sector?
Which agency is responsible for collecting hydrocarbon tax, corporate income tax, and education tax from the oil and gas sector?
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What is one of the fiscal options available to investors under the PIA?
What is one of the fiscal options available to investors under the PIA?
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What determines the royalties due from the upstream petroleum sector?
What determines the royalties due from the upstream petroleum sector?
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What is the penalty for gas flares resulting from midstream operations?
What is the penalty for gas flares resulting from midstream operations?
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Study Notes
Introduction to the Petroleum Industry Act (PIA)
- The PIA was enacted to promote investment in the Nigerian petroleum sector
- The new fiscal framework repeals the prior fiscal regime, including the Petroleum Profits Tax Act (PPTA)
- The PIA applies when existing Oil Prospecting Licences (OPLs) and Oil Mining Leases (OMLs) are converted to Petroleum Prospecting Licences (PPLs) and Petroleum Mining Licences (PMLs)
Objectives of the PIA
- To provide a forward-thinking fiscal structure that promotes investment in Nigeria's petroleum sector
- To balance rewards with risk and increase the Federal Government's revenues
Hydrocarbon Tax (HT)
- A new tax introduced by the PIA that will be levied against companies engaged in upstream petroleum operations
- Applies to crude oil, field condensates, natural gas liquids derived from associated gas, and produced in the field upstream of the measurement points
- Excludes associated natural gas, including gaseous NGLs produced in the field and contained in the rich gas and non-associated natural gas
- Rates: onshore acreages (lower of $8 per barrel and 20% of fiscal oil price up to 50 million barrels), shallow water acreages (lower of $8 per barrel and 20% of fiscal oil price up to 100 million barrels), and deep offshore and frontier acreages (lower of $8 per barrel and 20% of fiscal oil price up to 500 million barrels)
Companies Chargeable
- Companies engaged in upstream petroleum operations are generally subject to Hydrocarbon Tax charges and payments
- Includes corporations, partnerships, joint ventures, and other arrangements
Allowable Deductions
- Costs incurred outside of Nigeria, including head office, shared costs, research and development costs, and affiliate costs are not allowed
- Interest on loans, bank charges, HCT, and bad debts are not allowed
Non-Allowable Deductions
- Penalties and gas flare fees
- Production bonuses, signature bonuses for petroleum deposits, bonuses or renewal fees for petroleum mining lease
- Rent or repairs cost not incurred for operations
- Income tax on profits tax or similar taxes
- Depreciation
- Payment to provident, savings, widows and orphans or other society
- All custom duties
Key Fiscal Provisions
- Deadline for submission of audited account is five months following the end of the term or the effective date of the PIA, whichever is later
- New company yet to commence bulk sales or disposal of chargeables must file its audited accounts and returns within 18 months of its formation date
- Existing company must file its accounts and returns within 5 months after the end of any period ending on December 31
Royalties
- Price-based royalty on crude oil and condensates generated from all contract areas when the price per barrel surpasses $50
- Classification: condensates are classified as crude oil, while natural gas liquids (NGLs) are classified as natural gas
- Royalty rates vary based on production volume and field location (onshore, shallow water, deep offshore, and marginal fields)
- Gas royalty rate is 5% of the chargeable volume### Penalties and Offences
- Non-compliance penalty: N10,000,000 fine and N2,000,000 for every subsequent day the offence persists
- Late filing penalty: N10 million for the first day and N2 million for every other day
- Incorrect filing penalty: N15,000,000 or 1% of the tax understated in addition to the actual principal sum
- False or misleading information penalty: N5,000,000 or 1% of the tax amount that was understated
Royalties
- Onshore fields: flat royalty rate of 20%
- Offshore production: royalty rates vary from 0% to 18.5% depending on water depth
- Oil production: royalty rates range from 7.5% to 15%
Cost Price Ratio (CPR)
- Cost capping mechanism: 65% maximum
- Impacts the total allowable deductions in determining the chargeable profit in any assessment year
- Unclaimed costs can be carried forward
Petroleum Investment Allowance (PIA)
- Allows expenses incurred in any qualifying capital expenditure wholly, exclusively, and necessarily for the purpose of petroleum operations
- Cost-based and incentives-based on percentage of capital investments do not apply under new terms
Production Allowance
- Created for leases for crude oil production
- Pegged at a certain percentage per barrel
- Applicable to conversion contracts: lesser of $2.50 per barrel or 20% of the fiscal oil price
Allowable Deductions
- Rents incurred under a petroleum mining lease or petroleum prospecting license
- Royalties
- Repair and maintenance expenses
- Drilling expenditure of the first exploration well and the first two appraisal wells in the same field
- Decommission and abandonment contributions to an approved fund
- Statutory levies, stamp duties, and fees
- Costs of gas re-injection wells subject to ratification by the Commission
- Contribution to host communities development trusts and related sums
Non-Allowable Deductions
- Financial/bank charges
- Bad debts
- Interest on loans
- Arbitration and litigation costs
- Additional costs from tax gross-up clauses
- Costs incurred outside of Nigeria, including head office, shared costs, research and development costs, and affiliate costs
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Description
This quiz covers various financial costs associated with the petroleum industry, including penalties, bonuses, taxes, and custom duties. It also touches on costs related to purchasing information and repair costs.
