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Nigeria : Linking tax provisions in PIB to gas exploration business.

It is no longer news that oil-industry operators are awaiting the birth of the Petroleum Industry Bill (PIB), which is based on the report of the Oil and Gas Implementation Committee (OGIC) - set up in 2000 to carry out a comprehensive reform of the Nigerian oil and gas industry.

But while the waiting game continues, oil industry tax analysts/experts appear uncomfortable with the tax provisions in the PIB, which they perceive as a threat to gas exploration in Nigeria. Tax/financial analysts are however bothered because gas production remains incidental to petroleum operations in Nigeria, and the title to gas would depend on the nature of concession arrangements in place for the petroleum operations. The current tax laws (Companies Income Tax and Petroleum Profit Tax) allow offsetting gas exploration cost against petroleum operations.

At the Oil & Gas Taxation workshop organised by Stransact Partners in Accra-Ghana, experts in Oil & Gas taxation in Nigeria and Ghana met to discuss issues in the taxation of Oil & Gas, noting that tax provisions in the Petroleum Industry Bill (PIB) are disincentives to gas operations in the country (Nigeria), since the existing regime for taxation of gas is bad enough.

"PIB will kill gas explorations in Nigeria" said Abiola Sanni, senior lecturer, tax law, University of Lagos. "It does not give any differential treatment to gas exploration despite the lower returns from gas relative to petroleum. In addition, the PIB prohibits deduction of financing charges and offshore head office expenses."

In his presentation titled, "Taxation of Gas Operations in Nigeria", Sanni queried, "Why is the Nigerian gas sector still relatively underdeveloped despite its potentials, and what are the factors responsible for the particularly low levels of domestic gas utilisation?"

Under the PIB, 20 percent of any other expenses incurred by a gas exploration company outside Nigeria will be disallowed, and the experts were unanimous that no serious investor would invest under such conditions.

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Date:Jul 26, 2010
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