AN EXAMINATION OF ADMINISTRATIVE PRODUCTS UNDER THE PETROLEUM PROFIT TAX LAWS OF NIGERIA CHALLENGES INHIBITING THE DISTRIBUTION OF PETROLEUM
CHAPTER ONE
GENERAL INTRODUCTION
1.1 Background to the Study
Before a country considers how best to administer its tax system it must first possesses a clear picture of its tax system. The quality and quantity of resources required by tax administrations are to a large extent determined by the type of tax system which it is introduced. A nation‟s tax goals are not achieved by designing a tax system which is fair. Any fair system which is not administered as planned becomes inequitable. Thus, a good tax system is capable of financing the necessary level of public spending in the most efficient and equitable way possible. It should also raise enough revenue to finance essential expenditures without recourses to excessive public sector borrowing, raise the revenue in ways that are equitable that minimized its disincentive effects on economic activities, to do so in ways that do not deviate substantially from international norms.
It is common knowledge that one of the problems plaguing taxation in Nigeria has been the widespread tax evasion and avoidance which in the view of many experts in the tax field which has led to the loss of revenue which can be blamed on our inefficient and inept tax administrative machinery . There‟s no doubt that the administrative machinery in Nigeria still has a long way to go in terms of delivery and efficiency but it is believed that Nigeria‟s income tax law could in spite of their low rates and generous allowances, still have yielded much more revenue, but for the inefficient and defective assessment and collection machinery. For no matter how sophisticated and progressive a tax legislation is, it cannot be effective unless it is properly administered with competence and integrity. This is why in this paper we will be examining the problems facing the administration of petroleum taxation.
The Nigerian tax system has undergone several reforms geared at enhancing tax collection and administration with minimal enforcement cost. The recent reforms include the
Petroleum Industry Bill 2012 which is with the National Assembly, introduction of TIN (Unique Tax Payers identification number which became effective since February 2008), automated tax system that facilitates tracking of tax positions and issues by individual tax payers-payment system which enhances smooth payment procedure and reduces the incidence of tax touts, enforcement scheme (special purpose tax officers), these are special tax officers in collaboration with other security agencies to ensure strict compliance in payment of taxes.
The tax authority now has autonomy to asses, collect and record tax. This enabling environment which came into being on the basis of (Section 8(q) of FIRS Establishment Act 2007) has led to an improvement in tax administration in the country.
Petroleum is no doubt a predominant source of Nigeria‟s revenue and foreign exchange. The petroleum industry is divided into two main segments. The upstream and downstream sectors. The upstream refers to activities such as exploration, production and delivery to an export terminal of crude oil or gas.
The downstream on the other hand encompasses activities like loading of crude oil at the terminal and its user especially transportation, supply tradition, refining, distribution and marketing petroleum. The Petroleum Profit Tax is applicable to upstream operations in the oil sector. It is particularly related to rents, royalties, margins and profit sharing elements associating with oil mining, prospering and exploration leases. It is the most important tax in Nigeria in terms of its share of total revenue, contributing almost 90 percent of foreign exchange earnings and government revenue. It covered oil and gas sector.
The tax system is an opportunity for government to collect additional revenue needed in discharging its pressing obligations. A tax system offers itself as one of the most effective means of mobilizing a nation‟s internal resources and it lends itself to creating an
environment conducive to the promotion of economic growth.
