Assessment of the Petroleum Profit Tax under the Petroleum Industry Act 2021

Assessment of the Petroleum Profit Tax under the Petroleum Industry Act 2021

Project / Seminar Material
Reference ID: PS-24560-TM

DEDICATION

This research material titled “Assessment of the Petroleum Profit Tax under the Petroleum Industry Act 2021” is dedicated to God for his enabling grace, and to all computer enthusiasts who contributed to make life a pleasant experience during my research documentation.

ACKNOWLEDGEMENT

I extend my sincere gratitude to all those who contributed to the completion of this project. Special thanks to my Supervisor (Name of your Supervisor), the Head of Department (Name of your HOD), the Lecturers in the department of Taxation, Book Authors and Profound Scholars of existing or related project material on “Assessment of the Petroleum Profit Tax under the Petroleum Industry Act 2021” for their invaluable guidance, support, and expertise throughout the journey.

I am also grateful to your study area (mention any funding organizations, if applicable) for their financial assistance. This research would not have been possible without the encouragement and assistance of some stakeholders (mention any mentors, teachers, or colleagues). Additionally, I would like to acknowledge the understanding and patience of my family and friends during this endeavor. Your unwavering support has been a constant source of motivation. Thank you all for being part of this meaningful endeavor.

TABLE OF CONTENTS

PRELIMINARY PAGES

CHAPTER ONE

INTRODUCTION

    CHAPTER TWO

    LITERATURE REVIEW

    • 2.1 Introduction
    • 2.2 Conceptual Review
    • 2.3 Theoretical Framework
    • ⋮
    • 2.4 Empirical Studies

    CHAPTER THREE

    RESEARCH METHODOLOGY

    • 3.1 Introduction
    • 3.2 Research Design
    • 3.3 Population of Study
    • 3.4 Sampling and Sampling Technique
    • 3.5 Validation of Research Instrument
    • 3.6 Method of Data Collection
    • 3.7 Method of Data Analysis
    • 3.8 Questionnaire Administration
    • 3.9 Ethical Consideration
    • 3.10 Statistical Analysis

    CHAPTER FOUR

    DATA ANALYSIS, RESULT AND DISCUSSION

    • 4.1 Introduction
    • 4.2 Presentation and Analysis of Data
    • 4.3 Re-statement of Research Questions
    • 4.4 Test of Hypotheses
    • 4.5 Discussion of Findings

    CHAPTER FIVE

    SUMMARY, CONCLUSION AND RECOMMENDATION

    • 5.1 Introduction
    • 5.2 Summary of Findings
    • 5.3 Conclusion
    • 5.4 Recommendation
    • 5.5 Suggestion for Further Study

    REFERENCES

    APPENDIX A - “QUESTIONNAIRE”

    Assessment of the Petroleum Profit Tax under the Petroleum Industry Act 2021

    CHAPTER ONE

    1.1 Introduction

    The Petroleum Industry Act 2021 seeks to encourage investment in the Nigerian petroleum industry. By balancing rewards with risk, the new law can increase revenue to the Federal Government of Nigeria. It also seeks to provide a forward-looking fiscal framework. However, a fiscal framework that excludes renewable energy may be relevant for a short period. The additional sources of funds such as levies, statutory contributions will expand the revenue of the Federal Government. Nevertheless, an equitable and transparent administration is necessary to attain the objectives. The petroleum industry in Nigeria has upstream, midstream, and downstream operators (BRC, 2021).

    As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.

    1.2 Background of Study

    Over the years, petroleum profit tax has been a major contributor to the total tax revenue collection by the Federal Inland Revenue service. According to Usman and Adegbite (2015), the oil industry has achieved great prominence in the Nigerian economic environment since the early seventies. The government has given attention to the petroleum sector due to the huge revenue generated from petroleum profit tax. Jibrin, Ejura, and Ifurueze (2012) assert that the oil industry has become the mainstay of the Nigerian economy, generating about 85% of income for the federal government while 15% of income is generated from non-oil revenue. Statistics from the Central Bank of Nigeria revealed that as of 2000, oil and gas exports accounted for more than 98% of export earnings and about 83% of federal government revenue, as well as contributing more than 40% to the GDP. It also provides 95% foreign exchange earnings and about 65% of government budgetary revenues.

    According to Gbegi, Adebisi, and Bodunde (2017), the low economic performance experienced in Nigeria despite the huge petroleum revenue cannot be attributed solely to the instability of earnings from the oil sector, but as a result of government, failure to utilize the revenue generated from the oil sector to develop other sectors of the economy. It is dismal that a country so endowed with this natural resource will still be struggling as a developing nation instead of belonging to the league of developed nations of the world.

    Petroleum profit tax is a tax that is charged on the assessable profit of oil and gas companies which is 85% in Nigeria. It is worthy of note that the oil and gas sector has the highest tax rate in the country and the highest petroleum tax rate in the world. This is justified on the premise to capture the resource rent tax from the operations of the oil companies. Therefore, this study examines the effect of petroleum profit tax on the performance of listed oil and gas firms in Nigeria.

    Despite the substantial amount of revenue generated through petroleum profit tax over the years, and the importance attached to taxation as a veritable source of revenue in Nigeria, yet some oil and gas firms avoid or evade tax. These companies that avoid or evade tax argue that petroleum profit tax has a huge impact on their profitability due to the high tax rate charged on assessable profit.

    Ilaboya and Ofiafor (2014), opines that Nigeria appears to have the highest petroleum profit tax rate of 85%. The defense for this high rate is the need to capture the resource rent tax from the operations of the oil companies. Some other countries such as South Africa, Uganda, and Malaysia charge resource rent tax separately thereby reducing the petroleum profit tax rate.

    Therefore, in Nigeria where the research was carried out, the activities that was conducted is to assess the Petroleum Profit Tax under the Petroleum Industry Act 2021.

    1.3 Statement of Problems

    Investigation revealed that the discharge of government duties and obligations cannot be overemphasized, because the success and survival of any country depend to a large extent on the revenue generated. Taxation remains a veritable source of government revenue both in advanced and developing nations of the world. As a result of the importance attached to taxation, fiscal policies and tax laws are carefully made by the government to ensure that the objectives of a tax system are achieved. These objectives include the provision of basic social amenities for the benefit of citizens, security of the citizens and creating a conducive environment for the stimulation of economic growth and development.

    1.4 Aim and Objectives of Study

    The aim of the study is to assess the Petroleum Profit Tax under the Petroleum Industry Act 2021. In achieving this aim, the following specific objectives were laid out as follows:

    1. To investigate the effect of petroleum profit tax on Return on Assets of oil and gas firms in Nigeria
    2. To examine the effect of petroleum profit tax on Earnings per Share of listed oil and gas firms in Nigeria

    1.5 Research Questions

    The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

    • What is the effect of petroleum profit tax on Return on Assets of oil and gas firms in Nigeria?
    • What is the effect of petroleum profit tax on Earnings per Share of listed oil and gas firms in Nigeria?

    1.6 Research Hypothesis

    In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

    Hypothesis One

    • H0: Petroleum profit tax does not have a significant effect on Return on Assets of oil and gas firms in Nigeria
    • H1: Petroleum profit tax does have a significant effect on Return on Assets of oil and gas firms in Nigeria

    Hypothesis Two

    • H0: Petroleum profit tax does not have a significant effect on earnings per share of listed oil and gas firms in Nigeria
    • H1: Petroleum profit tax does have a significant effect on earnings per share of listed oil and gas firms in Nigeria

    1.7 Significance of Study

    This study will be of immense benefit to petroleum engineers, lawyers and other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

    1.8 Scope of Study

    The study focuses on the Assessment of the Petroleum Profit Tax under the Petroleum Industry Act 2021 in Nigeria.

    1.9 Limitations of the Study

    During the course of this study, many things militated against its completion, some of which are:

    1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
    2. Research material: availability of research material is a major setback to the scope of the study.
    3. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
    4. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

    1.10 Definition of Terms

    Petroleum profit tax: It is a tax that is charged on the assessable profit of oil and gas companies which is 85% in Nigeria. It is worthy of note that the oil and gas sector has the highest tax rate in the country and the highest petroleum tax rate in the world.

    …

    CHAPTER TWO

    2.0 Literature Review

    2.1 Introduction

    This chapter focuses on the review of related literature. A literature review includes the current knowledge as well as theoretical and methodological contributions to a particular topic. It documents the state of the art with respect to the topic you are writing. It surveys the literature in the topic selected. In this research work the literature review includes the …

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