Energy Alert: What to expect as Nigeria mulls over a new Petroleum Fiscal Policy

The Nigerian government recently released a draft fiscal policy which tends to overhaul the fiscal regime for petroleum operations in Nigeria. Highlights of the policy are as follows:

  • Reduction of government take for operations in onshore and shallow water

  • Increase government take for operations in deep water, consistent with Section 16 of the Deep Offshore Act

  • All upstream petroleum operators are to pay Company Income Tax

  • A resource tax, the Nigerian Hydrocarbon Tax (NHT), is to be introduced – 40% onshore, 30% shallow water and 20% deep water.

  • Upstream Investment Tax Allowance is to be eliminated

  • Limited pool of tax deductible expenses

  • 80% maximum recoverability of costs incurred overseas

  • Investment Tax Allowances and Investment Tax Credits shall no longer be applicable

  • Interest expenses shall not be deductible for tax purposes

  • Increase in the amount of non-deductible costs

  • A re-alignment of the basis of tax payments to coincide with royalty payments, thereby removing the current timing difference between tax and royalty payments.

It is expected that these policy highlights will form the bases of the Petroleum Industry Reform Bill being purposed by the Executive Arm of the Federal Government to be presented to the Nigerian National Assembly in the near future.

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