Finance Bill 2022: PwC Analyst Raises Fear of Further Investments Decline

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•Estimates oil companies’ taxes may soar above 80%

•Says govt sending dangerous signal with additional 20% tax on gas flaring

•Urges govt to end oil theft, fuel subsidy, prepare NNPC for public listing

Peter Uzoho

A partner at the PwC in charge of Fiscal Policy and Tax Regulations, Mr. Taiwo Oyedele, has warned that the proposal by the federal government to impose additional taxes on oil and gas companies through the Finance Bill 2022 may push the total taxes payable by companies over 80 per cent.

Oyedele also warned that such policy may also lead to further investment decline in the oil and gas industry, adding that the

sudden and arbitrary imposition of additional corporate income tax of 20 per cent on companies flaring gas constitutes policy inconsistency and dangerous signaling of uncertainty to investors.

Oyedele, who gave the warnings during a phone chat with THISDAY on the outlook of the oil industry for 2023, however, urged the government to halt the rampant oil theft permanently, discard the wasteful fuel subsidy and prepare the Nigerian National Petroleum Company Limited (NNPC) for public listing within the next two years.

The 2022 Finance Bill, which was recently hurriedly passed by the National Assembly and waiting for the presidential assent, has been generating a lot of backlash from oil industry players and economic policy analysts, who advised the government to review the proposed taxes before its assent and implementation.

Explaining that the Petroleum Industry Act (PIA), enacted after almost 20 years of uncertainties, had kept investments away, the PwC tax policy leader observed that one of the primary objectives of the PIA was to provide policy and regulatory certainty for businesses including applicable fiscal regime.

He noted that it was not feasible to eliminate gas flaring overnight, adding, “hence the sudden and arbitrary imposition of additional corporate income tax of 20 per cent on companies flaring gas constitutes policy inconsistency and dangerous signalling of uncertainty to investors.”

Oyedele said, “In addition, government owns the lion share of major oil producing assets and is jointly responsible for making the necessary investments for gas flare-out. Turning around to punish the private sector operators for the failure of both parties will be disingenuous.

“The proposed rate could increase the corporate tax rate for some oil companies to over 80 per cent, that is, hydrocarbon tax of 30 per cent, company income tax of 50 per cent and education tax of 2.5 per cent. This will make Nigeria uncompetitive and unable to attract the investments that the country desperately needs.”

Explaining how government could balance its quest to increase revenue through taxes and also boost foreign direct investment and job creation in the oil sector, the analyst said the most effective way to raise revenue was to stimulate investment in order to increase the size of the pie rather than insisting on squeezing out more from a shrinking pie.

He said government must take decisive steps to halt the rampant oil theft permanently, address the wasteful fuel subsidy, implement the PIA fully and run the NNPC Limited efficiently in preparation for public listing within the next two years.

“Clearly, the most important step is to tackle oil theft to a halt. In addition, fuel subsidy needs to go and the Petroleum Industry Act should be fully implemented while the NNPC Ltd should be set on the path towards public listing within the next year or two.

“These measures will not only help increase government revenue but also attract investments, create jobs and facilitate inclusive economic growth.” he said.

However, to encourage more investments for the development of Nigeria’s hydrocarbon resources in this time of energy transition pressures against fossil fuel, Oyedele advised the government to be deliberate in implementing relevant policies to attract investment as much as possible, especially into the gas sector, which has been earmarked as Nigeria’s transition fuel.