PRESIDENT MUHAMMADU BUHARI HAS ASSENTED TO THE BILL AMENDING THE DEEP
OFFSHORE (AND INLAND BASIN PRODUCTION SHARING CONTRACT) ACT. THE Deep
Offshore (and Inland Basin Production Sharing Contract) Act was recently
passed into law by the National Assembly. President Buhari in his tweet
appreciated the lawmakers for their cooperation in making the ‘long
overdue’ amendment possible. He added that that during his 2020 Budget
Presentation Speech before the National Assembly in October he had
earlier highlighted the need to urgently review the fiscal terms for
deep offshore oil fields, to reflect current realities and to ensure
increased government revenues.
The Senate passed the Deep Offshore and Inland Basin Production Sharing
Contract Act 2004 (Amendment) Bill, 2019 (the Bill) in October 2019. The
Bill which aims to amend the provisions of the Deep Offshore and Inland
Basin Production Sharing Contract Act 2004 (DOIBPSCA or the Act) also
aims to shore up Nigeria’s revenue earnings. DOIBPSCA regulates the
operations of oil and gas companies operating under production sharing
contracts (PSCs) in the Deep Offshore and Inland Basin. The Act gives
effect to certain incentives (such as lower royalty and tax rates etc.)
granted to oil and gas companies operating under PSCs in the Deep
Offshore and Inland Basin areas of Nigeria.
It would be recalled that, Nigeria’s push for more revenue from oil
has received a major boost as President Muhammadu Buhari assented to the
bill amending the Deep Offshore and Inland Basin Production Sharing
Contract (PSC) Act governing the PSC agreements between the federal
government and International Oil Companies (OICs). The House of
Representatives had earlier concurred with the Senate and passed the
bill. With the signing of the bill into law, the country is projected to
earn an additional income of $1.4 billion annually from the oil majors.
The passage of the bill, according to analysts, will also provide the
federal government further legal backing to pursue the $62 billion
entitlement that it claimed arose as a result of the failure to review
the production sharing formula when oil price exceeded $20 per barrel.
Before the president assented to the bill, the House had passed the
provision of new Section (18), which provides that: “Any person who
fails or neglect to comply with any obligation imposed by any provision
of the bill commits an offence and is liable on conviction to fine not
below N500 million or to imprisonment for a period not more than five
years or both.”
The approval was based on the recommendations adopted in the report on
the Bill for an Act to amend the Deep Offshore and Inland Basin
Production Sharing Contract Act, Cap. D3 Laws of the Federation of
Nigeria, 2004 and for other related matters. The bill had sought to
amend the Deep Offshore and Inland Basin Production Sharing Contract
Act, 2004 and to make provisions for price reflective royalties,
periodic review of royalties’ payable in respect of Deep Offshore and
Inland Basin Production Sharing Contracts as well as offences and
penalty for non-compliance. After the consideration of the report at the
Committee of the Whole, the bill passed through the third reading. In
the new fiscal regime as contained in the amendment to Section 5 of the
principal Act, the House approved royalties of 10 per cent in Deep
offshore greater than 200 water depth and 7.5 per cent in
frontier/Inland basin. The House also adopted royalty price in order to
allow for royalty reflectivity based on changing prices of crude oil,
condensates and natural gas. This also replaces the necessity for
section 16 of the principal Act.
The amendment also provides a new section 17 which states that “the
Minister shall cause the Corporation to call for a review of the
Production Sharing Contracts every eight years. “The royalty based on
price shall be identical for the various water depths in Deep offshore
(beyond 200metres water depth) including frontier acreages for crude oil
and condensates. “From $0 and up to $20 per barrel – zero per cent;
above $20 and up to $60 per barrel – 2.5 per cent; above $60 and up to
$100 per barrel –four per cent; above $100 and up to $150 per barrel
– (eight per cent) and above $150 – 10 per cent.”
The federal government had earlier begun moves to recover as much as $62
billion from international oil companies, being backlog of its share of
income from the PSC.
The government was basing its action on a 2018 Supreme Court judgment
that would enable the country to increase its share of income from PSC.
The government accused the energy companies of failing to comply with a
1993 contract law requirement that the government would receive a
greater share of revenue when the oil price exceeded $20 per barrel.
Taxation is a means by which governments finance their expenditure by
imposing charges on citizens and corporate entities. Governments use
taxation to encourage or discourage certain economic decisions. For
example, reduction in taxable personal (or household) income by the
amount paid as interest on home mortgage loans results in greater
construction activity, and generates more jobs. Taxation refers to
compulsory or coercive money collection by a levying authority, usually
a government. The term “taxation” applies to all types of involuntary
levies, from income to capital gains to estate taxes. Though taxation
can be a noun or verb, it is usually referred to as an act; the
resulting revenue is usually called “taxes.” Taxation is the method by
which governments finance their spending by levying charges on their
citizens and business entities in order to generate revenue. In
economics, taxes are divided between buyers and sellers and the tax
burden falls on the group that has to pay for the tax. In modern
countries, taxation is involuntary and failure to pay different taxes
can result in imprisonment. Government often uses taxation to encourage
or discourage certain economic decisions.
Taxation refers to the practice of government collecting money from its
citizens to pay for public services. Without taxation, there would be no
public libraries or parks. One of the most frequently debated political
topics is taxation. Taxation is the practice of collecting taxes (money)
from citizens based on their earnings and property. The money raised
from taxation supports the government and allows it to fund police and
courts, have a military, build and maintain roads, along with many other
services. Taxation is the price of being a citizen, though politicians
and citizens often argue about how much taxation is too little or too
much. Taxation is when governments require citizens to pay a certain
amount of money to help fund public institutions. Taxes are used to pay
for things like public education, welfare programs, transportation
infrastructure, defense funds and libraries.
The process whereby charges are imposed on individuals or property by
the legislative branch of the federal government and by many state
governments to raise funds for public purposes. The theory that
underlies taxation is that charges are imposed to support the government
in exchange for the general advantages and protection afforded by the
government to the taxpayer and his or her property. The existence of
government is a necessity that cannot continue without financial means
to pay its expenses; therefore, the government has the right to compel
all citizens and property within its limits to share its costs. The
state and federal governments both have the power to impose taxes upon
their citizens.
The basic concepts by which a government is meant to be guided in
designing and implementing an equitable taxation regime. These include:
(1) Adequacy: taxes should be just-enough to generate revenue required
for provision of essential public services. (2) Broad Basing: taxes
should be spread over as wide as possible section of the population, or
sectors of economy, to minimize the individual tax burden. (3)
Compatibility: taxes should be coordinated to ensure tax neutrality and
overall objectives of good governance. (4) Convenience: taxes should be
enforced in a manner that facilitates voluntary compliance to the
maximum extent possible. (5) Earmarking: tax revenue from a specific
source should be dedicated to a specific purpose only when there is a
direct cost-and-benefit link between the tax source and the expenditure,
such as use of motor fuel tax for road maintenance. (6) Efficiency: tax
collection efforts should not cost an inordinately high percentage of
tax revenues. (7) Equity: taxes should equally burden all individuals or
entities in similar economic circumstances. (8) Neutrality: taxes should
not favor any one group or sector over another, and should not be
designed to interfere-with or influence individual decisions-making. (9)
Predictability: collection of taxes should reinforce their inevitability
and regularity. (10) Restricted exemptions: tax exemptions must only be
for specific purposes (such as to encourage investment) and for a
limited period. (11) Simplicity: tax assessment and determination should
be easy to understand by an average taxpayer.
Tax Evasion: Tax evasion is a deliberate and willful practice
of not disclosing full taxable income so as to pay less tax.
In other words, it is a contravention of tax laws whereby a
taxable person neglects to pay the taxdue or reduces tax
liability by making fraudulent or untrue claims on the income
tax form. Tax is evaded through different methods some of
which include the following:
•Refusing to register with the relevant tax authority.
•Failure to furnish a return, statement or information or keep records
required. •Making an incorrect return by omitting or
understating an income liable to tax refusing or neglecting to pay
tax.
•Overstating of expenses so as to reduce taxable profit or income,
which will also lead to payment of less tax than otherwise have been
paid.
•A taxpayer hides away totally without making any tax return at all.
•Entering into artificial transactions.
Tax Avoidance: Tax avoidance has been defined as the
arrangement of tax payers’ affairs using the tax shelters in the tax
law, and avoiding tax traps in the tax laws, so as to pay less tax than
he or she would otherwise pay. That is, a person pays less tax
than he ought to pay by taking advantage of loopholes in a tax
levy. Tax can be avoided in various ways:
•Incorporating the tax payer’s sole proprietor or partnership
into a limited liability company.
•The ability to claim allowances and reliefs that are
available in tax laws in other to reduce the amount of income or
profit to be charged to tax.
•Minimizing the incidence of high taxation by the acquisition
of a business concern which has sustained heavy loss so as to set off
the loss against future profits.
•Minimizing tax liability by investing in capital asset (for instance
through the new form of corporate financing by equipment
leasing), and thus shelteringsome of the tax payers income from
taxation through capital allowance claims.
•Sheltering part of the company’s taxable income from income
tax by capitalizing profit through the issue of bonus shares to the
existing members at the (deductible) expenses to the company.
•Creation of a trust settlement for the benefit of children
or other relation in order to manipulate the martinet tax rate such
that a high income bracket tax payer reduces his tax liability.
•Converting what would ordinarily accrue to the tax payer
(employee) as income into capital gain (i.e Compensation for loss of
office) the advantage of the employer and employee.
•Manipulation of charitable organizations whose affairs are controlled
and dominated by its founders thus taking advantage of income tax
exemption. Buying and article manufactured in Nigeria thereby avoiding
import duty on imported articles.
•Avoiding the consumption of the articles with indirect taxes
incorporated in their prices e.g. tobacco.
Taxation has a key role in a modern economy. Listed below are the ways
in which governments can use taxation in a modern economy: – Revenue
generation: – Taxation is used by the government to raise revenues for
its operations, infrastructure, welfare, education defense. Behavior
Discouragement: – Also referred to as social engineering, the purpose of
this is to discourage people from antisocial behavior and is often done
heavily taxing the commodity there by increasing its price. Reducing
Inequality: – Tax money is used to serve the weaker sections of the
society through the welfare programs. Resource Redistribution: – Can be
used to transfer resources form one section of society to another
section of the society and protecting local Industry: – Local industries
are normally protected by the government through the use of heavy import
tariffs. This makes the imported goods more expensive then the local
goods and thereby encouraging the production of local goods.
Therefore, the importance of taxation to the national economy cannot be
overemphasized, without it, it would be extremely difficult for
government to be able to fulfill many of its obligations, therefore, the
new bill which the government has just will help in no small measure to
contribute to the all-round growth and development of the commonwealth
of the Nigerian state.