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Oil And Gas Tax: FG Loses N135bn Revenue Annually – Investigation



The current tax assessment regime in the oil and gas sector has been found to encourage loss of revenue due to under-assessment of Petroleum Profit Tax (PPT), Signature Bonus, Royalty and other specific flows due to the federal government, Leadership’s investigations has revealed.

This is even as the federal government lost a total of $675.8 million (N135 billion) to under-assessment in the various taxes in 2012 alone, owing largely to the defective tax assessment regime still operational in Nigeria’s oil and gas industry, according to data obtained by Leadership.

A breakdown of the loss showed over $210 million revenue loss to the federation as a result of under assessment of taxes, while a similar $465.8million was equally lost by the country as a result of under-assessment of PPT, royalty among others.

The Executive Secretary of the Nigerian Extractive Industries Transparency Initiative (NEITI) Zainab Ahmed, had recently lamented the huge revenue loss, disclosing that over $7.5 billion have been discovered in its oil and gas audit reports since 1999.

This amount she said “represents clear cases of under-payments, under-assessment, of taxes, royalties, rents which has been revealed by NEITI in its independent audits that has failed to be adequately addressed.”

Meanwhile, findings have showed that the federal government earned a total of $355, 292 billion as oil revenue between 2006 and 2012.

A breakdown of the earnings showed that government raked in $44, 687 billion in 2006, $43,781 billion in 2007 and $60, 364 billion in 2008. Government in 2009 earned a total of $30, 129, 486 billion, $44, 944, 995 billion in 2010, $68,442,328 billion in 2011 while $62,944 billion was earned in 2012.

Within the period however, a total of $150 million was recorded as unresolved differences arising from what government received and what oil companies paid as Petroleum Profit Tax (PPT), signature bonus, royalty and other sector specific flows. It was observed that government received less than what companies paid.

Findings from NEITI showed that a total of $26.1 unresolved differences was discovered in the 2006 – 2008 audit cycle, the amount rose to $77.5 million in the 2009 – 2011 audit cycle, while $47 million was discovered as unresolved difference in the 2012 audit.

Reacting to the development, a NEITI source told LEADERSHIP that the unresolved differences results from poor book keeping mainly on the part of receiving government agencies. The source who did not want to be named explained further that issues of unresolved differences can be addressed by improving on record keeping or digitalizing the tax payment system.

“Poor book-keeping mainly on the part of government agencies is responsible for unreconciled difference, because the oil companies are very thorough when it comes to issues of money. Their records are properly kept and they back the payments up with evidence,” the source said.

On the issue of losses occasioned from under-assessment in taxes which has continued to grow, Nigeria’s representative on the Extractive Industries Transparency Initiative (EITI) global Board, Faith Nwadishi, maintained that until the country corrects its tax assessment regime for International Oil Companies (IOCs), Nigeria will continue to be shortchanged from tax under-assessment.

According to Nwadishi who spoke exclusively to Leadership, Nigeria still maintains a tax regime whereby the IOCs are at liberty to compute their taxes and pay same to government with almost no one conducting due diligence to ensure the tax was accurately computed.

“Until we correct our tax assessment for international oil companies we will continue to have this issue, because presently the system allows them to do self-tax assessment. So whatever they come up with is what they pay to government,” Nwadishi told LEADERSHIP.

She maintained that the Department of Petroleum Resources (DPR) is not living up to their responsibility of conducting due diligence with a view to ensuring the oil companies correctly compute their tax.

Similarly, Nwasdishi who is also the Country Chair of Publish What You Pay (Nigeria), blamed the Federal Inland Revenue Service, (FIRS) for also failing to ensure further due diligence, hence the country is having revenue leakages through tax unde-rassessment.

She maintained that is was high time the FIRS re-evaluate and bring up to date the tax assessment system for international oil companies in order to plug revenue leakages in the interest of the nation’s economy.

Nwadishi who explained that the process was not rocket science, stated that in coming up with the figure of assessment, NEITI, using the existing tax regime in the country, simply looks at the volume of lifting’s recorded and compute to get the accurate amount of Tax which should have been paid by the companies.

Meanwhile, when contacted, NEITI’s Director of Communication, Orji Ogbonnaya Orji, pointed out that government can plug revenue leakages by giving NEITI reports and recommendation the needed political will to address issues in the oil and gas sector.

Ogbonnaya stated that some of the reconciliation process drag because of the lack of will by government to implement the findings and recommendations from NEITI reports.