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LEGAL FRAMEWORK FOR PETROLEUM ADMINISTRATION AND TAXATION IN NIGERIA: A LEGAL 

APPRAISAL OF CONFLICTING LEGISLATIONS* 

Abstract 

The Revenue from crude oil activities in the upstream sector are ordinarily taxed under Petroleum Profits Tax (PPTA) but for 

the enactment of the Petroleum Industry Act ( P I A) which has now incorporated the use of  Companies Income Tax Act in taxing 

petroleum operations. Petroleum Profit Tax accounts for the major revenue earning for the Federal Government of Nigeria, this 

makes it imperative for an effective administration and control of the sector by the federal government. Recently a new regime 

for the petroleum administration, Petroleum Industry Act, 2021, was introduced with an amendment of the Petroleum Act, 

2004.The new Act introduced host communities Development Trust Fund, Petroleum Fiscal Industry Framework, Hydrocarbon 

tax and others. Most importantly, while amending Petroleum Act and incorporating some of the changes in taxation of the sector, 

they failed to realize the need to amend the legislation for the taxation of the industry which is the Petroleum Profit Tax Act. It 

does appear that the Act while trying to address old problems ended up creating new ones. Doctrinal method of data collection 

was used and analytical approach adopted in examining the research materials including statutes, judicial decisions, text books, 

journal articles and internet materials. It revealed that the language of the Act is ambiguous and imprecise. It did not define the 

frontier basin to be distinct from host communities. Fundamentally, the amendment made Petroleum Industry Act estranged from 

the people and stakeholders in the oil and gas industry in Nigeria. There is need for further amendment of the petroleum Industry 

Act to bring it inconformity with the other tax legislations: the Petroleum Profit Tax Act and the Constitution. 

 

Keywords: Tax, Petroleum, upstream, midstream, downstream, hydrocarbon tax 

 

1. Introduction 

Crude oil was discovered in commercial quantity in Nigeria at Oloibiri in the present Bayelsa State in the Niger-Delta of 

Nigerian in 1956.1 But the history of oil production in Nigeria dates back to 1908 when an affiliate of a German Exploration 

company, the Nigerian Bitumen company, came to the present day Ondo state to venture for bitumen (tarsand).2 At this 

discovery, the oil exploration in Nigeria had to function within the ambit of the legal and policy framework that existed. There 

were a number of pre-independence laws3 regulating the oil exploration and production in Nigeria; however, the most 

significant post independence law is the Petroleum Act 1969.4 The Petroleum Act repealed the existing legislation on oil and 

gas exploration and production in Nigeria. The Act with other legislations like the Petroleum (drilling and Production 

Regulations) and other regulations made there under laid down the foundation of legal framework for the operations in the oil 

industry Nigeria until the National Assembly enacted Petroleum Industry Act, 2021. Nigeria earns about 80 percent of her 

gross domestic capital from the sale of petroleum products and different forms of petroleum taxes introduced by the 

government.5 Apart from other laws regulating the commercial practices in the upstream sector of the oil and gas industry, the 

primary legislation to collect taxes upon profits made from the winning of petroleum is the Petroleum Profit Tax Act (PPTA).6 

This chapter discussed the introduction of Hydrocarbon Tax with conflicting provisions from the aforementioned PPTA 

legislation with regards to tax revenue administration and collection in Nigeria. 

 

2. Conceptual clarifications 

 

Tax 

Taxation spans over a gamut of human activity and is essentially aimed at providing the requisite revenue for the socio-

economic development of a nation. Taxation7 is the composition or assessment of tax. It is the means by which the state obtains 

the revenue required for its activities. Tax is a pecuniary burden laid upon individuals or persons or property to support the 

government which is exacted by a legislative authority.8 It is a compulsory monetary charge imposed by the government on 

persons, entities, transactions or property to yield public revenue9. In Mathews v Chicory Marketing Board,10 it is a compulsory 

exaction of money by a public authority for public purposes or the raising of money for the purpose of government by means 

of contribution from individual persons. It is a demand made by Government of a country for a compulsory payment of money 

by the citizens of the country.11 Whenever issues come up requiring a determination of whether a person either natural or 

artificial is liable to pay taxes, the court is duty bound to explore the relevant tax legislations and apply them accordingly.12 It 

 
*By Kachidobelu John BIELU, LLB, LLM, PhD, BL, Lecturer, Faculty of Law, Nnamdi Azikiwe University Awka, 

Anambra State, Nigeria. Tel: +2348037443753. E-mail: kachbielu@gmail.com; kj.bielu@unizik.edu.ng 
1 MC Ogwezzy. Definition, History and Sources of Nigerian Oil and Gas law on Oil and gas Exploration and Production in 

Nigeria, MC Ogwezzy (Edited) (Ikeja; Princeton & Associates Publishing Co. Ltd, 2020) 17 
2 F Olanrewaju; The laws of oil pollution and Environmental Restoration: A comparative Review (Nigeria: Olade publishers: 

2010) 153  
3 The petroleum Ordinance 1889, Mineral Regulation (oil) Ordinance, 1907, Land and Native Rights proclamation of 19010, 

the Mineral Oils Ordinance of 194, the Mineral Ordinance 1946, mineral oil Amendment Act, 1950 and Oil Amendment 

Ordinance, 1958 
4 Petroleum Act 1969, cap10 LFN 2004, now repealed by Petroleum Industry Act, 2021. 
5 Petroleum Industry Act (PIA), 2021, Chapter 4, parts I, II, III, IV, V, Vi,SS258-276  
6 Cap p13. LFN 2004 
7 B A Garner (ed) Black’s Law Dictionary, 10th ed; (USA, Thomson Reuters St Paul MN, 2014) 1688 
8 I A Ayua, Nigerian Tax Law (Ibadan: Spectrum Law publishing, 1996) 9 
9 BA Garner (ed) Black’s Law Dictionary, op.cit. 
10 (1938) 60 CLR 263 at 276 
11 CS Ola, Nigerian Income Tax law and Practice (Ibadan, MacMillian Pub, 1983)13. 
12 Best Children Int’l Schools v FIRS (2019) 40 TLRN 33 



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is certain and well settled in our jurisprudence that taxation issues are not on all comers’ affairs or an arbitrary issue. No tax 

can be imposed on the subject without the word in an act of parliament clearly showing an intention to lay a burden on the 

subjects.13 Agbonika14 stated that for there to be command for the payment of tax, the following features or characteristics 

must be visible; 

i. It must be compulsory levy 

ii. There must be a legislation backing the demand for such payment. 

iii. The levy must be certain and show a basis for calculating the payment. 

iv. Payment must be for a public authority with tax jurisdiction known as the Relevant Tax Authority. 

v. Payment must be for the common good of all and not for any individual use. 

vi. There must be penalties for non-compliance with the law  

vii. Payment could be in money or money’s worth such as goods or free labour. 

 

Petroleum 

Petroleum means hydrocarbons and associated substance as exist in its natural state in strata and includes crude and includes 

crude oil, natural gas, condensate and mixture of any of them but does not include bitumen and coal.15 Crude oil16 is the 

petroleum which is in liquid conditions upon production from a reservoir either in its natural state or after the extraction of 

water, sand or other foreign substances from it, but before any such oil has been refined or otherwise treated, other than foreign 

substances from it, but before any such oil has been refined or otherwise treated, other than oil extracted by destructive 

distillation from coal, bituminous shale’s or other stratified deposits. On the other hand petroleum products mean materials 

derived from crude oil and natural gas processing such as ethane, propane, butanes, pentanes, liquefied petroleum gas, natural, 

gas liquids, asphalts, gasoline, diesel, gas oil, jet fuel, transportation fuels, fuel oils for heating and electricity generation and 

such other derivates. 

 

Hydrocarbon Tax 

The hydrocarbon tax applies to crude oil, field condensates and associated natural gas liquids and is subject to different licence 

charges which is 30% on converted PMLs and PPLs.17 The expenses must be wholly, reasonably, exclusively and necessarily 

incurred to be tax-deductible. However, a cost price ratio limit of 65% of gross revenue is imposed for hydrocarbon tax 

deduction purposes, any excess cost incurred may be carried forward.18 

 

Host Communities Development Trust Fund 

The operators in the sector are mandated to incorporate host communities’ development trust for the benefit of the communities 

for which the settlor is responsible.19 The Act by this societal change mandates that a company which secures an oil prospecting 

licence or mining lease or an operating company on behalf of joint venture to contribute a portion of its expenses to the host 

community’s development trust fund. The objective is to foster sustainable prosperity within host communities and for socio-

economic benefits and harmonious co-existence. It provides that 75% of available cash will be used for capital projects, 20% 

for reserves and 5% for administrative expense.20   

 

3. Ownership and Control of Petroleum 

Nigeria has exclusive rights to all mineral resources reposed under its territory including mineral oil.21 The property and 

ownership of petroleum within Nigeria and its territorial water, continental shelf and exclusive economic zone is vested in the 

Government of the Federation of Nigeria.22 The federal Government of Nigeria therefore grants licences such as petroleum 

exploration licence to qualified applicants to carryout petroleum operations and petroleum prospecting licence to drill 

exploration and appraisal of wells and do corresponding test production on a non-exclusives basis.23 In Attorney General of 

the Federation v Attorney-General Abia State,24 the issue before the Supreme Court was for the determination of the seaward 

boundary of a littoral states within the Federal Republic of Nigeria for the purpose of calculating the amount of revenue 

accruing to the federation account directly from any natural resources derived from the state pursuant to section 162(2) of the 

constitution of the Federal Republic of Nigeria 1999. The apex court held inter alia that none of the littoral states is sovereign 

despite the historical narration by some of them. The states are part and parcel of the sovereign independent Nigeria. The 

implication is that none of them can exercise any control claim that revenue accruing from mineral resources offshore belong 

to any of them. In line with the statutory and judiciary authorities, no state government, local government or any group of 

 
13 A Authority v Regional Tax Board (1970) All NLR 177, Scottish Widows Plc & ors v Commissioner for her Majesty Revenue 

and Customs (SCOTLAND) ors (2011) LPELR-17822 (UK) and VODACOM BUSINESS Nig Ltd v FIRS (2018) 35 TLRN 01 

at 18. 
14 JAM Agbonika & JAA Agbonika, Understanding of ABC of Taxation the Nigerian Perspective in JA M Agbonika et al (ed) 

Tropical Issues on Nigerian Tax Laws and related Areas, Vol 2. Ababa Press Ltd, (2018) p2. 
15 PIA, 2021, chapter 5, section 318 
16 Ibid 
17 PIA, Chapter 3, s 260. 
18 Ibid, s. 263. 
19 Ibid, s. 235. 
20 Ibid, s. 244 
21 Constitution of the Federal Republics of Nigeria (CFRN) 1991 as amended, second schedule part 1, Exclusive Legislative 

;list, item 39  
22 PIA, 2021, Chapter 1, parts 1, s.1 
23 Ibid, Chapter2, part 11, s.70 (i) (a-b) 
24  (No 2) (2))2) FWLR (pt. 102)1 



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persons other than federal Government can exercise any sovereign right, claim, control or ownership over oil and gas resources 

within, upon or underlying all lands, sea bed and sub-oil including lands under the territorial waters of Nigeria or that forms 

part of the continental shelf or exclusive Economic zone of Nigeria.25 

 

4. Licences Granted by the Federal Government 

The petroleum Industry Act26 provides for three (3) classes of oil licenses and leases that could be granted by the commission27 

to an applicant. In Nwadioro & 2 ors v Shell Petroleum Development   Company of Nigeria Ltd,28 the court held that under 

then Petroleum Decree No 51 it empowers the minister or government to grant the licence. The Act29 provides that there shall 

be the following licences and lease under the Act related to upstream petroleum operations: - 

(a) Petroleum exploration licence, which may be granted to qualified applicants to carry out petroleum exploration 

operations on a non- exclusive basis; 

(b) Petroleum prospective licence, which may be granted to qualified applicants to: 

(i) Drill exploration and appraisal wells and do corresponding test production on an exclusive basis, and 

(ii) Carry out petroleum exploration operations on a non-exclusive basis and  

(c) Petroleum mining lease, which may be granted applicants to: 

(i) Win, work, carry-away and dispose of crude oil, condensates and natural gas on an exclusive basis. 

(ii) Drill exploration and appraisal wells and carryout the related test production on an exclusive basis and 

(iii) Carryout petroleum exploration operations on a non-exclusive basis 

 

Note that the Act30 provides that a licence or lease may only be granted to a company incorporated and validly existing in 

Nigeria under the companies and Allied Matters Act. 

 

Petroleum Exploration Licence (PEL)31 

A petroleum Exploration Licence is granted to a company to explore for petroleum on a non-exclusive basis of the right to 

carryout exploration operations. The licence shall be for three years and may be renewable for additional period of three years 

subject to fulfillment of prescribed conditions.32 

 

Petroleum Prospecting License (PPL)33 

The holder of a petroleum prospecting license shall, subject to the fulfillment of obligations imposed by the Act shall have 

exclusive right to drill explorations and appraisal well within the area provided for in the licence. The holder may carry away 

and dispose of petroleum won during prospecting operations subject to the fulfillment of obligations imposed upon him by or 

under this Act. 

 

Petroleum Mining Lease (PML)34 

This is granted only to the holder of an oil prospecting licence who has satisfied all the conditions imposed on the license or 

otherwise imposed on him for instance a daily production of not less than 10, 000 barrels. 

 

5. Establishment of incorporated Joint Venture 

i) The Nigerian National Petroleum Company Limited (NNPC Ltd)35 and other parties to joint operating agreements in respect 

of upstream petroleum operations, may on a voluntary basis restructure their joint operating agreement as joint venture carried 

out by way of a limited liability company (IJVC) with a view to, among other things36 (a) agreeing and executing a 

shareholder’s agreement in respect of the applicable IJVC (b) agreeing to the provisions of the memorandum and articles of 

association of the applicable IJVC.  Following the incorporation of an IJVC; (a) It can carry out upstream, midstream and 

downstream petroleum operations subject to the appropriate fiscal regime as specified in this Act, provided, however, that 

where the parties wish to enter into more than none stream of operations, the parties shall incorporate separate companies 

under the Act (b) It shall be deemed to be the sole licence or lessee (as applicable) of each petroleum prospecting licence or 

 
25 Exclusive Economic zone is defined in Article 53 of the United Nation as Conventions on the law of the sea, 1982 as an 

area beyond and adjacent to the territorial sea, subject to the specific legal regime established in this part, under which the 

right and jurisdiction of the coastal state and the rights and freedom of other states are governed by relevant provisions of the 

convention. The zone shall not extend beyond 200 nautical miles from the baselines from which the breath of the territorial’s 

seas is measured. 
26 PIA, 2021, Ibid, s.70  
27 Ibid, 2.318, Commission means the Nigerian upstream Petroleum Regulatory Commission established under the Act  
28 NOGC 1 (1961-1995)205 
29 PIA, 2021, Ibid, s.70 (I) (a-c) 
30 Ibid, S.70 (2),. However, this is subject to the overriding power of the Minister of Petroleum in Section 3 (1) (g-h). Note 

however, that the implication of the use of may is that where a non-Nigeria company meets up with the terms and conditions 

it could be granted 
31 Ibid, s 71 (1) 
32 Ibid, S 71 930 
33  Ibid, S 72 (1) 
34  Ibid, S. 81 (1) 
35 Ibd, S. 65 (i) The Proposed IJVC Structure shall be an independent entity, having a strong commercial orientation and 

transportation company operation for the IJVC shareholders with clear rules for accountability. 
36 PIA, 2021, second schedule, paragraph 1,2,3, & 4 



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petroleum mining lease held jointly under the applicable existing joint operating agreement immediately prior to its 

incorporation. 

 

Production sharing contract 

Production sharing contract is any agreement for the exploration, development and production of petroleum on terms under 

which the financial risk-bearing party shall recover costs and receives a share of the profits based on a share of production as 

established in the contract from the applicable area. NNPC Limited is vested with the concessionaire of all Production Sharing 

Contracts (PCS), profit sharing and risk service contracts as the national oil company on behalf of the federation in line with 

its competencies.37 Under this arrangement, NNPC limited remains the owner of the mineral right (concession) and enters into 

a contract with a foreign technical partners designated contractors as held Esso Exploration and Production Nigeria Ltd & nor 

v FIRS.38 The contractor bears all the risks and when oil is discovered in commercial quantity, they recover their cost and share 

profit on a predetermined ratio with NNPC. The royalty payable under this arrangement is as follows; 

201 - 500mters water depth . . .12% 

501 - 800 meters depth . . . .8% 

801 - 1000 meters depth . . . .4% 

Beyond 1000 meters water depth . . .  0% 

At the inland basin water depth  .  .10% 

 

6.  Petroleum Profit Tax 

The Petroleum Profit Tax Act39 provides a legal framework for the understanding of the Nigeria Petroleum tax regime. It is 

only the profit of the upstream activities, that is, operations involved in all the activities carried out in the oil exploration, 

drilling, extraction, development, production, transportation and sale of crude oil that is chargeable to tax.40 The profit of the 

other two categories of companies involved in the industry, that is, the downstream and midstream sectors are charged under 

the Companies Income Tax Act, 2007. 

Apart from the Petroleum Profit Tax Act, there are other various contractual agreements, memorandum of understanding and 

others that provide information on the incentives made available by the federal government to the operators in the oil and gas 

sector. These include: 

a. Associated Gas Fiscal Arrangement (AGFA) 1992 which was later reviewed in 1997, 1998and 19999, 

b. Production Sharing Contract (PSC) of 1993. This deals with the exploration and production in deep offshore 

territorial waters in Nigeria. 

c. Memorandum of understanding (MUO) of 2000. 

 

Noteworthy, is the introduction of Hydrocarbon Tax41 in the Petroleum Industry Act, 2021 which is applicable and levied upon 

the profits of companies engaged in the upstream Petroleum operations in the onshore, shallow water and deep offshore, 

payable during each accounting period. 

 

6.1 Administration of Petroleum Profit Tax  

Taxation of Petroleum Profit which started since 1959 and the enactment has further been amended and the objectives of which 

as stated in the preamble is to impose a tax upon profits from winning of petroleum in Nigeria, to provide for the assessment 

and collection thereof and for purposes connected therewith. 

The Board42 was established in the Act,43 The Federal Inland Revenue Service (FIRS) is vested with the power to administer, 

manage, charging and collection of petroleum profit tax. The Federal Inland Revenue Service is statutorily responsible for the 

assessment and collection of taxes in the oil and gas sector of the economy. The powers and duties of the service are spelt out 

subject to other provisions of the Act,44 thus; 

i. The due administration of the Act, the care and management of the tax. 

ii. Power to acquire, hold and dispose property taken as security for or in satisfaction of any tax or any judgment 

debt due in respect of any tax 

iii. May sue and be sued in its official name and subject to any express provisions under any subsidiary legislation or 

otherwise, the Board may authorize any person to accept service of any document to be sent, served  upon or 

delivered to the  Board. 

iv. The service may by notice in the Federal Gazette call for any information, return or documents required to be 

supplied to such other person whether within or outside Nigeria. 

 
37 Ibid, S. 64 (b) 
38 (2012) 8 TLRN 45 
39 (PPTA) cap p13 LFN 2004 
40 PPT, LFN 2004, s.8 
41 PIA, 2021, s.260, however, subject to section 262 of the Act, the crude oil revenue of the company shall be the value of any 

chargeable oil adjusted to the measuring points based on the proceeds of the chargeable oil sold by the company and the value 

of all chargeable oil disposed of by the company.   
42 Formerly., Federal Board of Inland Revenue of Inland Revenue (FBIR) but now; Federal Inland Revenue Service (FIRS) 

see, section 259 of the Petroleum Industry Act 2021 and section 1 of the Federal Inland Revenue Service (Establishment) Act, 

2007 
43 PPTA Act, LFN 2004, s.3, however see the provisions of section 259 of the PIA, 2021. 
44 Ibid, S.3 (1) (a-l) Again, PIA, 2021, S.259 provides that the functions of the service shall include assessment and collection 

of hydrocarbon tax and enforcement of the provisions of the Act, companies Income tax and tertiary education fund as it relates 

of petroleum operations.    



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v. By notice in the Federal gazette or in writing authorize any person within or outside Nigeria to perform certain 

functions on behalf of the service.45 

vi. The powers and duties assigned to the service are however subject to the authority, direction and control of the 

minister. The proviso is that he  shall not give any directive, order or instruction to the service to raise an additional 

assessment upon such company or to increase or decrease any assessment made or to be made or any penalty 

imposed or to be imposed upon or any relief given or to be given to or to defer the collection of any tax, penalty 

or judgment debt due by such company or which would have the effect of altering the normal course of any 

proceedings, whether civil or criminal, relating either to the recovery of any tax or penalty or any offence relating 

to tax. 

vii. Receive every claim, objection, appeal, representation or the like made by any person under any provision of the 

Act or any subsidiary legislation made there under, shall be made in accordance with such Act and legislation and 

 

By virtue of the Act,46 an act required to be done by the service in relation to its powers and duties may be signified under the 

hand of the chairman of the Board or any officer of the service authorized by the service. There is an imposition of an Oath of 

secrecy on any person involved in the administration of the Act.47 But this duty of secrecy may be waived with an authorization 

of the minister or for the purpose of the Act or other law relating to income in force in Nigeria. Note that subsection 3 further 

excludes any such document or information from being tendered or communicated in court in any proceedings other than for 

the purpose of carrying out the provisions of the Act or to institute prosecution. The power to make rules generally for the 

carrying out of the provisions of the Act is vested in the minister while the service is empowered to specify the form of returns, 

claims, statements and notices to be used under the Act.48 Service of notice is to be effected at the registered office of the 

company to be served in the case of companies registered in Nigeria and on the individual authorized to accept service in the 

address filed with the Registrar-General (now the Corporate Affairs Commission)49 or the registered office of the company 

wherever it may be in the case of a company registered outside Nigeria. 

 

7. Charge to tax 

Taxation of petroleum profits is levied under the Act50 as follows; 

There shall be levied upon the profits of each accounting period of any company engaged in petroleum 

operations during that period, a tax to be charged, assessed and payable in accordance with the provisions 

of this Act. Note the tax is levied on the profits of a company engaged in petroleum operations as opposed 

to individuals who are not permitted to go into petroleum operations.51 

Petroleum operations pursuant to the Act means the winning or obtaining and transportation of petroleum 

or chargeable oil in Nigeria by or on behalf of a company for its own account by any drilling, mining, 

extracting or any other like operations or process, not including refining at a refinery, in the course of a 

business carried on by the company engaged in such operations and al operations incidental thereto and 

any sale of or disposal of chargeable oil by or on behalf of the company. 

But in Shell v FBIR,52 the Supreme Court wrongly gave the meaning of petroleum operations to include 

operations incidental to the carrying out of petroleum operations thus; 

 

A close examination of the definition of the words petroleum operations in section 2 would show that the specific words therein 

are not limited to drilling, mining, extracting or other like operations but include in addition the phrase or process, not including 

refining at a refinery, in the course of a business carried on by a company engaged in such operations.  In my view there is no 

distinct genus in the definition for the phrase and all operations incidental thereto to allow the rule of ejusdem generis to apply. 

In the above, the Supreme Court left the restrictive definition of the word petroleum by the Act and expanded the meaning of 

the word to include the activities of companies not chargeable under the Act. The definition activates activities such as refining 

of crude oil, marketing, solid minerals, solid field services and others to be subject to petroleum profit tax. The decision is 

contrary to the position of law as the court failed to make a distinction between the activities subject to companies’ income tax 

Act and Petroleum Profit Tax. 

 

8. Ascertainment of profits, Adjusted profits, Assessable Profits and Chargeable Profits 

The profit of a period of a company shall be taken to be the aggregate of53: 

(i) the proceeds of sale of all chargeable oil sold by the company in that period. 

 
45 Any claim against the action of the service shall not be on the ground that it is contrary to the direction, order or instruction 

given by the minister 
46 PPTA, 2014, s.4 (1-4) 
47 Ibid, s.5. The secrecy affects dealing with documents, information, returns, assessment lists and copies of such lists relation 

to income and chargeable profits. 
48 Ibid, s 6 (1 & (2) 
49 Ibid, s7 (3). The Corporate Affairs Commission established under the companies and Allied Matters Act 1990 is now the 

successor of the Registrar of companies.  
50  
51 Ibid, s.24. This prohibits any person (other than a company) to engaged in Petroleum operation either as a person or in 

partnership with any other person for the purpose of sharing the profit arising thereto 
52 3 All NTC 315 at 345; Tilimanans & co v SS knithsford Limited (1908)2 Kb 385 at 403; (1908) Ac 207.  
53 Ibid, s.9 (1) (a-c) 



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(ii) the value of all chargeable oil disposed of by the company in that period; and54 

(iii) all income of the company of that period incidental to and arising from any one or more of its petroleum 

operations 

 

8.1 Assessable Profit Tax 

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.55 The assessable tax for any accounting period of a company shall be an amount equal to 85% of its 

chargeable profits of that period,56 but for new oil fields before production; the tax rate is 65.75%. Under the production sharing 

contract for deep offshore, it is 50%. This is summed up by Omoregbe57 thus: ‘… The nominal petroleum profits tax rate as 

specified under the Act is 85%. For new fields the rate is 65.75 before production and 85% after production has commenced. 

For production sharing contracts in respect of shallow water concessions the tax rate is 65.75%. For the first five years before 

production, after production the rate of 85% applies…’This is the profit of an accounting period after the deduction of the 

adjusted profit of that period allowed under the Act.58 The deductions allowed under section 20(2) & (4) of the Act. The 

deductions allowed on subsection 2 are the aggregate amount of all allowances due to the company for the accounting year 

under the provisions of the second schedule. They are; 

i. Petroleum Investment Allowance. These qualifying expenditures allowed a company in an accounting period in 

respect of an asset used wholly and exclusively by the company in petroleum operations. The deduction allowance 

is in respect of the accounting year in which the asset is first used. 

ii. Annual allowance: this is qualifying expenditure allowed a company in an accounting period in respect of an asset 

used wholly and exclusively for petroleum operations, whether or not an initial allowance maybe due to it. If the 

accounting period is less than a year, the allowance for the period shall be proportionately reduced. 

iii. Balancing Allowance: This qualifying expenditure allowed a company in an accounting period in respect of an asset, 

which immediately prior to its disposal, was wholly and exclusively used for petroleum operations. The allowable 

deduction is the excess of the residue of that expenditure over the value of the asset at the date of its disposal. 

 

The chargeable tax computed under subsection 3 of this section shall be split between the Nigerian National Petroleum 

Corporation and the Crude oil producing company in accordance with the production of the percentage of profit of split. The 

deduction allowed under subsection (4) is a sum equal to 85 percent of the assessable profits of the accounting period, less 170 

percent of the total amount of the deductions allowed under the Act59 for the period.  The limitation imposed here is to ensure 

that the amount of tax chargeable on the company for the accounting period shall not be less than 15 percent of the tax which 

would be chargeable on the company for the period, where no deductions allowed under section 20 of the Act for that period.60 

Subsection 5 requires that where the total amount of the allowances computed pursuant to subsection (2) cannot be deducted 

for reasons of insufficiency of assessable profits or no assessable profits or the limitation imposed y subsection (4). The total 

amount or part thereof that has not been deducted shall be added to the aggregate amount or part thereof that has not been 

deducted shall be added to the aggregate amount of allowances due to the company under the second schedule for the 

subsequent accounting period and shall be deemed to be allowances due to the company for the said subsequent accounting 

period.61 In determining the adjusted profits of the company in any accounting period, no deductions shall be allowed in respect 

of: 

i. Disbursement or expenses not wholly and exclusively incurred in regard to petroleum operations. 

ii. Capital withdrawn or any sum employed or intended to be employed as capital; 

iii. Capital employed in improvements distinct from repairs. 

iv. Sums recoverable under an insurance or contract of indemnity; 

v. Rent or cost of repairs to any premises not engaged for the purposed of petroleum operations. 

vi. Amounts incurred in respect of any income tax, profits tax or other similar tax whether charged within Nigeria or 

elsewhere. 

vii. Depreciation of any premises, buildings, structure, works of a permanent nature, plant, machinery or fixture; 

 
54Note that this include the value of that oil as determined, for the purpose of royalty, in accordance with the provisions of any 

enactment applicable thereto and any financial agreement or arrangement between the Federal Government of Nigeria and the 

company and others.  
55 PIA, 2021, s. 265(i) 
56 PPTA, 2004, s.21(i) 
57 T. Omoregbe, Oil and Gas law in Nigeria (Lagos, Malthouse Law Books Publishers, 2001) 70. However, section 22 of 

PPTA provides: 

i. A crude oil producing company which executed a production sharing contract with Nigerian National Petroleum 

Corporation in 1993 shall throughout the duration of the production sharing contract be entitled to claim an investment 

tax credit allowance as an offset against tax in accordance with the provisions of the production sharing contract. 

ii. In computing the tax payable, the investment tax credit shall be applicable in full to petroleum operations in the contract 

area such that the chargeable tax is the amount of the assessable tax less the investment tax credit. 
58 Ibid, Ss. 9(4) and 20. Section 20(1) PPTA defines the chargeable profits of an accounting period of a company as the amount 

of assessable profits of that period after the deduction of any amount to be allowed in accordance with the provisions of the 

section. 
59 Ibid s, 17 
60 Ibid s. 20(3) 
61 I 0 Okauru (ed) A comprehensive Tax History of Nigeria (Ibadan Safari Books Ltd, 2012) 228. 



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viii. Payments to any provident fund, savings, widows and orphans, society, scheme or fund except as allowed under 

another provisions.62 

ix. Any customs duty on goods (including articles or any other thing) imported by the company either for resale or 

personal; consumption of employed of the company, or where goofs of the same quality to those so imported are 

produced in Nigeria and are available at the time of the imported good were ordered by the company for sale to the 

public at prices less or equivalent to the cost to the company of the imported goods; 

x. Any expenditure for the purchase of information relating to the existence and extent of petroleum deposits. This is 

calculated as the amount of assessable tax less the certain tax offset.63 In computing the tax payable, the investment 

tax credit shall be applicable in full to petroleum operations in the contract such that chargeable tax is the amount of 

assessable tax less the investment credit.64 The investment tax credit rate for a company operating under production 

service contract with the Nigeria National Petroleum Corporation (NNPC) Limited is 50% flat rate for the contract 

area, regardless of the duration of the contract.65 The Investment Tax Credit allowance shall be offset against the 

chargeable tax in accordance with the provisions of the production sharing contract. 

 

8.2 Adjusted profits  

Adjusted profits of an accounting period are the profits of that period after the deductions of allowable expenditure66 and any 

adjustments necessary to exclude the profits or loss attributable to the transportation for chargeable oil,67 which is assessable 

under Companies Income Tax Act. This profit is made for the period after deductions allowed and adjustments made in line 

with the provisions of the Act.68 The deductions allowed under section 10(i) of the Act are; 

a. Any rent (other than rents included in the definition of royalties) incurred by the company for that period in respect 

of land or building occupied for its petroleum operations or compensation incurred for disturbance of surface rights 

or any like disturbance under an oil prospecting licence or oil mining lease; 

b. Sums incurred by way of interest upon money borrowed by the company where the interest was a payable on capital 

employed in carrying out petroleum operations;(however such sums would not be allowed as deductions if either 

company has interest in the other company; or both companies have interests in a third company directly or by proxy 

or both companies are subsidiaries of one mother company). 

c. Any expense incurred for the repair of premises, plant, machinery or fixture employed for the purpose of carrying 

on petroleum operations of for the renewal, repair or alteration of any implement, utensils or articles so employed 

d. Debts directly incurred to the company and proved to the satisfaction of the Board to have become bad or doubtful 

within the accounting period which shall not exceed the portion of debt proved to have become doubtful debt were 

due and payable prior to the commencement of the accounting period. 

 

Again, expenditure in connection with geological and geo-physical surveys inclusive of the drilling of the first two appraisals 

wells in a particular filed including expenditure on cement and casing and well fixture and any other expenditure including 

intangible drilling costs in connection with drilling and appraisal or development. Any contributions to pension, provident or 

other society, scheme  or fund and duties, custom and exercise duties, stamp duties, education tax, tax or any other rate, fee or 

other like charges.69  Bank charges and scholarships are ordinarily not deductible as allowable expenses, except where the 

charges arise or were imposed by the Federal Government in the course of the company’s operation relating to the petroleum 

operation, such charges will be allowed once they are incidental to petroleum operations. The decision is Shell Petroleum, 

Development Company (Nig) Ltd v FBIR70 that the scholarship expenses incurred by a company will qualify as allowable 

expenses under section 10(i) of the Act which was followed in Gulf oil company (Nigeria) Ltd FIRS71 is with respect wrong 

in law 

 

8.3 Chargeable Profit 

The chargeable profit 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 the Act.72 It is the amount of assessable 

profit of the accounting period after the deduction allowed in section 20 of the Act. It is the amount assessable profit of the 

accounting period less the sum total of capital allowances provided in the second schedule to the Act.73 It is the amount to be 

allowed as a deduction under subsection (i) in respect of the said allowances shall be the aggregate amount computed under 

subsection (2) and the sum equal to 85% of the assessable profits of the accounting period less 17% of the total amount of the 

deduction allowed as petroleum investment allowance computed under the second schedule to this Act for that period; 

whichever is the less.74 

 
62 Ibid s. 10 (i) (k) 
63 Ibid s.22 
64 Ibid, s.22(3) 
65 Ibid s.22(2) 
66Ibid, S.9(3) 
67 Ibid, S 14 
68 Ibid, ss. 10 &14 
69 Ibid, s. 10 (i) (a)-(i) 
70 (1996) 8 NWLR (pt 466) 256 
71 (2012) 7 TLRN 163. In FIRS v SPDC (Nig) Ltd (2018) 19 TLRN 13 and FIRS v Mobile Prod. Nig Unltd (2018) 37 TLRN 

01 the court held that such charges or fees are not deductible. 
72 PIA, 2021, s.266(1) 
73 PPTA, LFN 2004, s. 20(2) 
74 Ibid, s. 20(4) 



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9. Deductions 

In computing the adjusted profits of a company of any accounting period from its petroleum operations, there shall be deducted 

all outgoings and expenses wholly, exclusively and necessarily incurred whether within or outside Nigeria and necessarily 

incurred whether within or outside Nigeria for the purposed of those operations during that period.75 The outgoings and 

expenses include rents in respect of land or building occupied under an oil prospecting and oil mining lease for disturbance of 

the surface rights or another likes as compensation paid in respect of damages to crops, houses and interference for easement. 

All non-productive rents, the liability for which was incurred by the company during the period are inclusive. Royalties for 

liability for which was incurred in respect of natural gas sold and delivered to NNPC limited or sold to any other buyer or 

customer or disposed in any commercial manner and other royalties in respect of machineries, equipment and goods used by 

the company in petroleum operations, sums incurred by way of interest upon money borrowed and interest payable on capital 

employed or interest on any inter-company loans obtained under terms prevailing in the open market that is in London inter-

bank offer rate by companies that engage in crude oil production operations. Expenses incurred for repair of premises, plant 

machinery or fixture employed for the purpose of    petroleum operations or renewal, repair or alteration of any implement, 

utensils or articles so employed. Debts directly incurred and proved to the satisfaction on the Board, however there is a 

proviso.76 In Shell Petroleum Development Company of Nigeria Ltd v FBIR,77 SPDC submitted its returns for the period 1st 

January to 31st December 1993 to the Federal Board of Inland Revenue, showing the tax liability which the company was 

payable to it. FBIR disallowed four expenses claimed as deductible items in the returns filed by SPDC on the ground that such 

expenses were not deductible in computing chargeable tax. The   four items were; 

a. Exchange losses on payment of petroleum profits tax 

b. Central Bank commission for payment of petroleum profit tax 

c. Scholarship expenses and  

d. Gifts and donation 

 

Shell, however, at the hearing abandoned the fourth item on gifts and donations. The appeal was dismissed by the Body of 

Appeal Commissioners and on further appeal to the Federal High Court, the appeal was allowed with respect to exchange 

losses on payment of petroleum profits tax and Central Bank Commission. Both parties appealed to the court of Appeal which 

dismissed shell’s appeal and allowed the appeal by FBIR. At the Supreme Court, the appeal of Shell Company was allowed. 

The Apex Court held that exchange losses are incidental for shell to pay debt for the purpose of Petroleum operations which 

could not have been incurred but for the agreement between shell and Federal Government. Another reasoning of the court is 

that the payment of Bank charges was on the directive and further the creation of scholarship expenses was a statutory 

obligation to be observed by Shell and was therefore incidental and deductible. By the decision, the Apex Court exhibited with 

respect lack of understanding of the sui generis nature of tax statutes. The court followed and relied on the administrative 

directive of a government agency which the court likened to a debt to that agency under the provisions of the Act78 despite the 

dictum of Belgore CJ in Gulf Oil company of Nigeria Ltd v FBIR,79 which highlighted a long line of decision on the same 

interpretation, thus; 

… I have no doubt in my mind as to the meaning of the subsection. It may be unique or general in taxation 

legislation but it is clear, meaningful and unambiguous. Under the provision deduction allowed in the 

Harrod (Buenos Aires) case (ie Harrods (Buenos Aires) Ltd v Taylor-Gooby (H.M Inspector of taxes) 

(1961-64) 41TC 50 will not be allowed supposing one chooses or one is asked to post one’s tax assessment 

to the tax authority the expenses of postage village to a Government Treasury in order to pay one’s tax, 

such expenses incurred by travelling would not be allowed under subsection (i) (f) of section 11… 

 

The court in constructing the provisions of the Petroleum Profit Tax Act refused to apply a literal rule of interpretation given 

to a revenue statute, that is, applying the ordinary meaning of the phrase “petroleum operations but resorted to an interpretation 

anchored on the principle of equity.80 In Partigton v AG,81 Lord Cain, stated inter alia;… in other words, if there be admissible, 

in any statute, what is called an equitable construction such a construction is not admissible in a taxing statute, where you can 

simply adhere to the words of the statute. Again, the decision did not appreciate the rule that judicial reasoning has always 

leaned on the side of calculating tax liability in the currency of the country of assessment as established in Payne v The Deputy 

Commissioner of Taxation.82 By the decision and later statutory provision83  the Nigerian National currency was sacrificed at 

the altar of convenience notwithstanding that a country’s currency is an index of its sovereignty. 

 

 

 

 
75 Ibid, s.10(1) 
76 The deductions shall not exceed that portion of the debt which is proved to have become doubtful during the period. Again, 

amount deducted previously in respect of bad or doubtful debts shall for the purposes of subsection (1) (c) of section a be 

treated as income 
77 (1996) 8 NWLR (pt.466) 256 
78 Ibid, s.41 
79 Suit no FHE/L/3A/83(unreported) judgment  delivered on 30th January 1985 
80 Cape Brandy Syndicate v IRC (1921) 12 TC 358, which stated that one has to look merely at which is clearly state. There is 

no room for adopting principle of equity. There is no presumption and noting is to be read in, implied but a fair consideration 

of the language used. 
81 (1869) LR 4HL100 
82 (1936) 2 All ER 793 
83 PPTA, LFN,2004, s.40(1) (2) 



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10. Deductions not allowed 

The Act84 provides that no company shall be allowed to deduct disbursements or expense not being money wholly and 

exclusively laid without or expended or any liability not being a liability wholly or exclusively incurred for the purpose of 

those operations, capital withdraw or sum employed or intended to be employed as such in improvement distinct from repairs 

will be disallowed. An amount incurred in respect of any income tax, profit tax or other similar tax whether charged within 

Nigeria or elsewhere. 

 

11. Allowances under Petroleum profit Tax 

 

Capital Allowance 

Allowances accrued to companies engaged in Petroleum operation. Acquisition of right in or over petroleum deposits searching 

for and discovery and testing of petroleum deposits and winning access to it of the construction for any work or building s 

which are likely to be of little or no value when the petroleum operations for which they were constructed ceased to be carried 

on. The items that qualify as capital allowance are qualifying plant expenditure building expenditure and qualifying drilling 

expenditure.85 The capital allowance is claimed within five years; 20 percent the first years, 20 percent, 2nd, 20 percent, 20 

percent and 19 percent in the fifth year. 

 

Petroleum Investment Allowance (PIA) 

This is grated in the first years as a qualifying capital expenditure incurred during petroleum operations. In the calculation of 

PIA, Onshore operations is 5percent, offshore up to and including 100 meters above continental shelves is 10 percent, offshore 

operations between 100-200 meters is 15 percent and offshore operations beyond 200 meters is 20 percent.86 There is Annual 

Allowance and balancing Allowance just like Capital Allowance, the rate is at 20 percent for the first four years and the fifth 

year is 19 percent. The Balancing Allowance occurs when the sales proceeds of the assets used in petroleum operations is less 

than the tax was written down the value of the qualifying capital expenditure as at the time of disposal. The proviso is that the 

assets must be used for petroleum operations when the qualifying expenditure was incurred.87 Note that excess on the value at 

the date of disposal, over the residue of the expenditure at that date shall be treated as an income of the company for that 

accounting period and as such taxable.88 

 

Investment Tax Allowance/tax Credit 

The incentives are available to a company where a crude oil producing company executes a production sharing contract with 

the Nigerian National Petroleum Corporation. 

 

Incentives for Utilization of Associated Gas89 

The following incentives shall apply to a company engaged in the utilization of associated gas, that is investment required to 

separate crude oil and gas from the reservoir into usable products shall be considered as part of the oil field development.90 

Capital investment on facilities to deliver associated gas in usable form at utilization or designated custody transfer points is 

treated for tax purposes as part of capital investments for oil development. 

Note that oil industry should stop enjoying pioneer reliefs 50 years after investment. This will held Nigerian Government to 

deal with the excesses in the sector. 

 

12. Chargeable Tax 

Chargeable Tax is the amount of assessable tax after the investment tax credit is deducted. In computing the tax payable, the 

investment tax credit shall be applicable in full to petroleum operations in the contract area such that the chargeable tax is the 

amount of the assessable tax less the investment tax credit which is at the 50 percent flat rate. 

 

13. Assessment and collection of Petroleum Profit Tax 

 

Tax rates 

The Petroleum Profit Tax Act91 provides tax rate in the petroleum industry. The Assessable tax is levied on the profits of 

petroleum companies at the rate of 85% for exported crude oil, 65.75% under the domestic sale and under the production 

sharing contract for deep offshore. Furthermore, companies holding oil concession and start oil production on or after 1st of 

April 1977 shall pay at 65.75% until their production costs are fully amortized less the 19% residual book retention, when the 

company shall be taxed at the rate of 85%.92 

 

 

 

 

 
84 Ibid, s. 13 (1) 
85 Ibid, schedule; para 1(1) 
86 Ibid, second schedule, table 11 
87 Ibid, paragraph 8 
88 Ibid Paragraph 9 
89 Ibid, s.11 
90 Ibid, s.11 (1) (a), 22(2)-(5) 
91 Ibid, s.21(1) 
92 Ibid s.21(2) and second schedule, paragraph 6(2) 



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Assessment of Tax 

The assessment of the liability of every company for every accounting period shall be as soon as due or after the expiration of 

the tithe allowed for delivery of accounts and particulars.93 Where a company delivers returns, the Board may accept and make 

an assessment accordingly or refuse to accept the same and proceed to estimate the amount of the tax to be paid based on best 

of its judgment.94 This is otherwise referred to as original assessment where the Board will rely on the returns filed and assess 

the company. On the other hand, where the board discovers that the returns are incorrect or incomplete, the board will assess 

the company based on their estimation, best of judgment. Again, the board could come up with an additional assessment when 

the board discovers that the company had been under assessed or have not be assessed within 6 years after the expiration of 

that accounting period. In Mobil Oil Nigeria Ltd v FBIR,95 the Supreme Court adopted the interpretation of Lord Denning MR 

for the word discovered in an English case of Parking v Cattle.96 In Gulf Oil Company (Nig) Ltd v FBIR,97 wherein the 

respondent raises an additional assessment on the Appellant for the years 1974,1975,1976 and 1977 totaling #3,250,804.91. 

The Appellant contended that the additional assessment in respect of 1974 and 1975 raised in 1982 were statute barred. 

Although the respondent, FBIR argued that the negotiations between the appellant ad the respondent did affect the time limit, 

the Federal High Court allowed the appeal stating that the commissioners were therefore wrong. This was adopted by the Court 

of Appeal. Assessment could also be amended where eh tax payer assessed has objected to an assessment made upon him 

agreeing with the Board as to the amount of tax liable to be assessed, the assessment shall be amended accordingly and notice 

of the tax payable served on the tax payer.98 This is a situation where the company objects to the original assessment in writing 

and sent to the Board within 21 days or any other period allowed by the Act, from date of service of such original 

assessment.99Where a company engaged in petroleum operation fails to agree with the Board on the amount of tax, the Board 

can revise the assessment and service the notice to the taxpayer.100 Any assessment made, amended, revised or determined on 

a valid objection or appeal shall be final and conclusive assessment.101 

 

14. Enforcement of Petroleum Profit Tax  

By the provisions of the Federal Inland Revenue (Establishment) Act,102 the service is permitted to co-opt the assistance of 

law enforcement agencies in the enforcement of the tax due and levy distraint. This is where the companies did not conduct 

self assessment and did not file returns and FIRS undertakes the necessary assessment and after same being final and conclusive 

upon service of demand notice.103 In distraining with an order of court, the properties collected shall be kept for 14 days, if the 

tax debt is not settled the FIRS will sale them. On the other hand, a company aggrieved by an assessment made on him may 

appeal against the Tax Appeal Tribunal within 30 days of service of notice on him.104 The decision of TAT is to be registered 

with the Federal High Court through the Chief Registrar.105 By paragraph 17, of the Fifth Schedule to the Federal Inland 

Revenue (Establishment) Act, 2007, further appeal from the decision of TAT lies with the Federal High Court on a point of 

law. A notice with that regard shall be made within 30 days and the secretary shall immediately compile the record and transmit 

same to the Registrar of the Federal High Court. Further appeals go to the Court of Appeal and Supreme Court.106 

 

15. Penalty for Non-Payment of Tax 

Any installment of tax due and payable but not paid within the appropriate time limit,107 the penalty shall be the sum equal to 

five percent of the amount of the installment of tax due and payable shall be added thereto. Where the notice is served and not 

paid within one month from the date of the service of the demand notice, an enforcement of the payment is commenced. Tax 

due but unpaid within one month as prescribed the company shall be guilty of an offence,108 with a fine N10,000.00. Where 

in the course of its adjudication, the Tribunal discovers evidence of possible criminality; the tribunal will pass the information 

to the appropriate criminal prosecuting authority. The duty of prosecuting will be passed unto the Attorney-General of the 

Federation or the Attorney-general of any state of the federation or other relevant law enforcement agency.109 The general 

provision of the Act,110 is that any person found guilty of an offence against the Act or rule included under the Act for which 

no other penalty is specifically provided, shall be liable to a fine of N10,000 and an additional sum of N2,000 for each day of 

default or six months imprisonment. The offences include; 

i. Engaging in joint or partnership in petroleum operations with a view to submit the profit.111 

 
93 Ibid, ss.20 & 35, FIRS Act, s.68 & First Schedule to the Act 
94 Ibid, s30,31,32,33,34, and 35 PPTAs 
95 Suit No SC/488/75 
96 (1971) TR 77 
97 (1997) 3 All NTC 485 
98 PPTA, 2004, s.38(5) 
99 However, see Federal Inland Revenue (Establishment) Act 207, s.68(2) 
100 PPTA, 2004, op cot s.38 (6) 
101 Ibid, S.43(1) 
102 FIRS(E) Act 2007, s. 36(1) 
103 Ibid, s. 3291) (d) 
104 Ibid, s 38(6) 1. Paragraph 13(2) of Fifth schedule of FIRS Act 
105 Ibid, 5th Schedule, paragraph 16(2) 
106 Ibid, s.42(4) 
107 PPTA, 2004, S.46 but see also ss 41 and 45 
108 Ibid, S.46(2) 
109 FIRS (E) Act 2007, 5th Schedule paragraph 12 
110 PPTA, 2004, S.51 
111 Ibid, s.24(1) 



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ii. Failure to submit returns.112 

iii. Failure to deliver accounts, particulars or information or to keep records required. 

iv. Failure to comply with the requirements of a notice served on him. 

v. Failure to comply with the requirement for accounts for profits and losses.113 

vi. Failure to attend in answers or summons served on him or fails to answer any question lawfully put to him. 

vii.  Failure to keep sufficient records114 

 

The offence of making a false statement or false representation or forgery, fraudulently, lends in any form of aid, assist, and 

counseling, inciting or inducing any other person to make or deliver false return or statement, keep or preparing any false 

return or statement and refusal or neglected to pay tax. This is liable to a fine of N1,000 and triple the amount of tax for which 

the person assessable is liable for imprisonment or six months or both.  Again, any person who withheld tax deducted or did 

not deduct at all is guilty of an offence and liable to a fine and liable to a fine of 200% of tax withheld or not remitted and 

interest at the prevailing commercial rate.115 However, the offence by authorized or unauthorized person, that is, 

a. Demands in excess of an assessment 

b. Withholds a portion of tax collected 

c. Enters false returns of the amount collected 

d. Defrauds any person, embezzles or use his position to deal wrongfully with enter the Board or individual. 

e. Not being authorized collected or attempts to collect tax 

 

In all, the offender found guilty shall be liable to a fine of N600 or to imprisonment for three years or both. 

 

16. Recovery of Tax and Commencement of suit 

The suit for the recovery of tax shall be maintained in a court of competent jurisdiction and in the official name of the Board. 

The official name of the Board is Federal Inland Revenue Service (FIRS).116  

 

17. Repayment of Tax 

Claim for repayment of any tax overpaid shall be made in writing within six years next after the end of the accounting period 

to which it relates.117 The Board may dispute the claim and issue notice of refusal to admit the claim,118 where the board 

accepts or under any order of a competent jurisdiction, a certificate to that amount shall be given. The Account General of the 

Federation shall upon the receipt of the Certificate cause the repayment to be made. 

 

18. Conclusion and Recommendations 

The passage of the long awaited Act is a major win for the petroleum industry as a whole and the country as a whole. It will 

help to attract foreign investment in the sector. The Petroleum Industry Act represents an effort to revamp the oil sector.  It set 

out standards for the management the foremost Nigeria’s natural resources. It made the upstream sector a commercially and 

profit oriented business, the economic and social development of the host communities. The duty introduced is help protect 

oil assets in the communities from vandalism. Note that it introduced 3% contribution to Host Communities Development 

Trust Fund and 30% profit to NNPC Ltd for the Frontier Basin. The PIA introduced a Hydrocarbon Tax without necessary 

amending Petroleum Profit Tax Act. This tax applies to crude oil, condensates and natural gas liquids produced from associated 

gas operations. It is charged and assessed on profits from crude oil on such operations in each accounting period at the stated 

rates for new acreages and converted acreages respectively. While commending the effort to fast-track the turnaround in the 

petroleum sector, there is need to avoid creating more problems while attempting to solve another. It is recommended that the 

following be addressed: The existence of two laws of PIA and PPTA will create more confusion; one should be made to repeal 

the other. For instance, sections 260 to 301of PIA conflicts with the PPTA provisions. Under the Petroleum Industry Act, there 

are a lot of challenges of interpretation and imprecision that calls for amendment. For instance, there is the creation of 3percent 

levy for the host communities whereas there exists, Niger Delta Development levy. There should be either the aggregation of 

those levies or scraping of one. The provision of 3 percent contribution for the host community but 30 percent for the frontier 

Basin is not fair. The introduction of the new Hydrocarbon Tax will lead to an unnecessary tension in the country as the amount 

that will be accruing to the revenue pool; the Federation Account will be low. This will also call for constitutional amendment. 

  

  

 

 

 
112 Ibid, s.33(1) 
113 Ibid, s. 30 & 52 (1) (b) 
114 Ibid s.29 
115 Ibid, s.54 
116 FIRS (E) Act, 2007, s.48 and 59 
117 PPTA, 2004, s.50(1) 
118  


