PIA-2021 Fiscal Framework – Hydrocarbon Tax PDF

A 286 2021 No. 6 Petroleum Industry Act, 2021 (ii) companies income tax and tertiary education tax in accordance with this Act as it relates to taxable petroleum operations ; (b) the Commission shall be responsible for the determination and collection of — (i) royalties, signature bonus, rents, a...

A 286 2021 No. 6 Petroleum Industry Act, 2021 (ii) companies income tax and tertiary education tax in accordance with this Act as it relates to taxable petroleum operations ; (b) the Commission shall be responsible for the determination and collection of — (i) royalties, signature bonus, rents, and related payments and its enforcement under this Act, and (ii) related payments or production shares, where the model contract includes provisions related to production sharing, profit sharing or risk service provisions ; and (c) the Authority shall be responsible for the determination and collection of the gas flare penalty arising from midstream operations and its enforcement under this Act. PART II—HYDROCARBON TAX Application of this Part. 260.—(1) This part applies to companies engaged in upstream petroleum operations in the onshore, shallow water and deep offshore, provided that— (a) hydrocarbon tax shall apply to crude oil as well as field condensates and liquid natural gas liquids derived from associated gas and produced in the field upstream of the measurement points ; and (b) hydrocarbon tax under this Part shall not apply to— (i) associated natural gas, including gaseous natural gas liquids produced in the field and contained in the rich gas, and non-associated natural gas, (ii) condensates and natural gas liquids produced from non-associated gas in fields or gas processing plants, provided the related volumes are determined at the measurement points or at the exit of the gas processing plant, regardless of whether the condensates or natural gas liquids are subsequently commingled with crude oil, and (iii) any condensates and natural gas liquids produced from associated gas at gas processing or other facilities downstream of the measurement points. Cap. C21, LFN, 2004. (2) The costs of production of associated gas, upstream of the measurement point shall be allocated to crude oil for the purposes of calculating hydrocarbon tax, provided that capital and operating costs for wells solely producing associated gas-cap gas shall not be allocated to crude oil, but shall be claimed under the Companies Income Tax Act. (3) This Part shall not apply to a frontier acreage until it is reclassified under section 68 (3) of this Act and to deep offshore. Petroleum Industry Act, 2021 2021 No. 6 A 287 (4) For the purpose of determining royalties, condensates shall be treated as crude oil and natural gas liquids as natural gas. (5) Upstream petroleum operations shall also be subject to Companies Income Tax Act. Cap. C21, LFN, 2004. 261. There shall be levied upon the profits of any company engaged in upstream petroleum operations in relation to crude oil a tax to be known as hydrocarbon tax, which shall be charged and assessed upon its profits related to the operations and payable during each accounting period in accordance with this Act. Charge of hydrocarbon tax. 262.—(1) Subject to this Act, in relation to any accounting period, the crude oil revenue of a company for that period shall be the value of any chargeable oil adjusted to the measurement points, based on the— Ascertainment of crude oil revenue, adjusted profit, assessable profits and chargeable profits. (a) proceeds of all chargeable oil sold by the company ; and (b) value of all chargeable oil disposed by the company. (2) For the purpose of subsection (1), the value of any chargeable oil disposed of, shall be regarded as the aggregate of the value of that crude oil determined for royalties for all fields in accordance with this Act or any applicable law. (3) Subject to section 266 (2) of this Act, the adjusted profits of an accounting period shall be the profits of that period after the deductions allowed by section 263 (1) of this Act. (4) The assessable profit of an accounting period shall be the adjusted profit of that period after any deduction allowed by section 265 of this Act. (5) The chargeable profits of an accounting period shall be the assessable profits of that period after the deduction allowed by section 266 of this Act. 263.—(1) In computing the adjusted profit of a company in upstream petroleum operations related to crude oil for any accounting period, there shall be deducted expenses wholly, reasonably, exclusively and necessarily incurred during that period for the following, including but without otherwise expanding or limiting the generality of— (a) rents incurred by the company for the period pursuant to a petroleum mining lease or petroleum prospecting licence ; (b) all royalties the liability for which was incurred and were paid by the company during that period in respect of crude oil and associated gas and where a petroleum mining lease includes payments to the Federation Account Allowable deductions. A 288 Fifth Schedule. 2021 No. 6 Petroleum Industry Act, 2021 related to production sharing, profit sharing, risk service contracts or other contractual features under a model contract and the company has incurred liability for such payments in kind or in cash ; (c) expenses directly incurred for repair of plant, machinery or fixtures employed for the purpose of carrying on production activities or for the renewal, repair or alteration of production implement, utensils or articles so employed ; (d) an expenditure, tangible or intangible directly incurred in connection with the drilling of the first exploration well and the first two appraisal wells in the same field, whether the wells are productive or not, provided that subsequent exploration wells, appraisal wells and other wells shall be treated as qualifying drilling expenditure under the Fifth Schedule to this Act and where a deduction may be given under this section in respect of any such expenditure, that expenditure shall not be treated as qualifying drilling expenditure for the purpose of the Fifth Schedule to this Act ; (e) any amount contributed to a fund, scheme or arrangement approved by the Commission for the purpose of decommissioning and abandonment, provided that the surplus or residue of the fund shall be subject to tax under this Act at the end of life of the field, where such surplus is returned to the lessee ; (f ) all sums the liability of which was incurred by the company to the Federal Government or any State or Local Government Council by way of levies, stamp duties and fees ; (g) costs of gas reinjection wells, which are re-injecting natural gas that otherwise would be flared, subject to ratification by the Commission ; and (h) any amount contributed to any fund, scheme or arrangement approved by the Commission pursuant to the establishment of host communities development trusts under Chapter 3 of this Act, Environmental Remediation Fund, Niger Delta Development Commission and other similar contributions. (2) Where a deduction has been allowed to a company under this section in respect of a liability of the company and the liability or part of the liability is waived, released or recovered, the amount of the deduction corresponding to the liability or part thereof shall, for the purpose of section 262 (1) of this Act, be treated as income of the company of its accounting period, in which such waiver or release was made or given. Deductions not allowed. 264. Subject to this Act, for the purpose of ascertaining the adjusted profit of a company in the accounting period from its upstream petroleum operations applicable to crude oil, no deduction shall be allowed in respect of— Petroleum Industry Act, 2021 2021 No. 6 (a) disbursements or expenses not being money wholly, reasonably, exclusively and necessarily incurred for the purpose of those operations ; (b) expenditure for the purchase of information relating to the existence and extent of petroleum deposits, other than for the acquisition of geophysical, geological and geochemical data and information ; (c) expenditure incurred as a penalty, natural gas flare fees or imposition relating to natural gas flare ; (d) financial or bank charges, arbitration and litigation costs, bad debts and interest on borrowing ; (e) head office or affiliate costs, shared costs, research and development costs or any other like shared indirect production costs ; (f ) production bonuses, signature bonuses paid for the acquisition of, or of rights in or over, petroleum deposits, bonuses or fees paid for renewing petroleum mining lease or petroleum prospecting licence or marginal field or fees paid for assigning rights to another party ; (g) tax inputted into a contract or an agreement on a net tax basis and paid by a company on behalf of the vendor or contractor ; (h) capital withdrawn or sum employed or intended to be employed as capital ; (i) capital employed in improvements as distinct from repairs ; (j) sum recoverable under an insurance or contract of indemnity, except an amount that is not recovered under the scheme ; (k) rent of or cost of repairs to any premises or part of premises not incurred for the purpose of those operations ; (l) amounts incurred in respect of tertiary education tax, companies income tax, any income tax, profits tax or other similar taxes, whether charged within Nigeria or elsewhere ; (m) the depreciation of any premises, buildings, structures, works of a permanent nature, plant, machinery or fixtures ; (n) payment to provident, savings, widows and orphans or other society, scheme or fund ; (o) any contribution to a pension, provident or other society, scheme or fund for production staff which may be approved, with or without retrospective effect, by the National Pension Commission subject to such general conditions or particular conditions in the case of the society, scheme or fund as the Service may prescribe, provided that any sum received by or the value of any benefit obtained by the company, from any approved pension, A 289 A 290 Sixth Schedule. Assessable profits and losses. 2021 No. 6 Petroleum Industry Act, 2021 provident or other society, scheme or fund, in the accounting period of that company shall, for the purpose of section 262 (1) of this Act, be treated as income of the company for that accounting period ; (p) all customs duties ; and (q) costs under paragraph 2 (2) (c) of the Sixth Schedule to this Act. 265.—(1) The assessable profits for each company or petroleum mining lease for any accounting period shall be the amount of the adjusted profit of that period after the deduction of the amount of any loss incurred by that company during any previous accounting period. (2) The assessable profit shall be determined separately for each of the two classes of chargeable tax identified in section 267 (a) and (b). (3) A deduction under subsection (1) shall be made so far as possible from the amount, if any, of the adjusted profit of the first accounting period after that in which the loss was incurred, and, so far as it cannot be so made, then from the amount of the adjusted profit of the next succeeding accounting period and so on until such loss is fully deducted. (4) Within five months after the end of any accounting period of a company, or within such further time as the Service may permit in writing, the company may elect in writing that a deduction or any part to be made under this section shall be deferred to and be made in the succeeding accounting period, and may so elect in any succeeding accounting period. Chargeable profits and allowances. Fifth Schedule. Sixth Schedule. 266.—(1) The chargeable profits of any company for any accounting period shall be the amount of the assessable profits of that period after the deduction of any amount to be allowed in accordance with the provisions of this section, namely— (a) the aggregate amount of capital allowances due to the company under the provisions of the Fifth Schedule to this Act for the accounting period ; (b) the aggregate amount of all production allowances due to the company under the provisions of the Sixth Schedule to this Act for the accounting period ; and (c) in the case of acquisition costs of petroleum rights, the value of the rights and the value of the assets acquired shall be reported separately to the Service, provided that the value of the rights shall be eligible for annual allowance of 20% per annum and the value of the assets shall be depreciated based on the applicable depreciation rates for the respective assets, and there shall be a retention of 1% in the last year until the asset is disposed of. Petroleum Industry Act, 2021 2021 No. 6 (2) In determining the chargeable profit, the total cost shall not exceed the cost-price ratio as determined in the Sixth Schedule to this Act. A 291 Sixth Schedule. (3) The chargeable profits and allowances shall be determined separately for the two classes of assessable profits under section 267 (a) and (b) of this Act. PART III—ASCERTAINMENT OF CHARGEABLE TAX 267. The chargeable tax for any accounting period of a company shall be a percentage of the chargeable profit for that period aggregated and it shall be— Chargeable tax. (a) 30% of the profit from crude oil for petroleum mining leases selected under section 93 (6) (b) and (7) (b) of this Act with respect to onshore and shallow water areas ; and (b) 15% of profit from crude oil for onshore and shallow water and for petroleum prospecting licences selected under section 93 (6) (a) and (7) (a) of this Act. 268.—(1) Where, for any accounting period of a company, the amount of the chargeable tax for that period, calculated in accordance with the provisions of this Act other than this section, is less than the amount mentioned in subsection (2), the company is liable to pay an additional amount of chargeable tax for that period equal to the difference between those two amounts. Additional chargeable tax payable in certain circumstances. (2) The amount referred to in subsection (1) is, for any accounting period of a company, the amount which the chargeable tax for crude oil for that period, calculated in accordance with this Act, would come to, in the case of crude oil exported from Nigeria by the company, the reference in section 262 (1) (a) of this Act to the proceeds of sale were a reference to the amount obtained by multiplying the number of barrels of that crude oil determined at the measurement point by the fiscal oil price per barrel. (3) For the purpose of subsection (2), the Commission shall establish the fiscal oil price at each measurement point on an export parity basis under paragraph 8 (1) and (2) of the Seventh Schedule and the total value of the chargeable oil for a company shall be the sum of the multiplications of volume and fiscal oil price at all measurement points as established by the Commission. (4) The whole of any additional chargeable tax for crude oil and associated gas payable by a company by virtue of this section for any accounting period shall be payable concurrently with the final instalment of the chargeable tax payable for that period. Seventh Schedule.