The implementation of the Petroleum Industry Act 2021 is going to significantly reduce the revenue accruable to the Federation Account, the Revenue Mobilisation Allocation and Fiscal Commission declared on Wednesday.
It stated that while the PIA sought to provide legal, governance, regulatory and fiscal framework for the management of the petroleum industry and the development of host communities, its promoters might not have thought through the impact of the Act on revenues to the Federation Account.
The RMAFC disclosed this in a report it presented to oil and financial sector players as well as other stakeholders at a retreat with the theme, “Petroleum Industry Act 2021 and its Impact on Federation Revenue,” held in Uyo, Akwa Ibom State.
In the report, which was made available to our correspondent in Abuja, the commission said, “The Petroleum Industry Act 2021 is a bold attempt to address regulatory and governance issues that have impacted negatively on the growth of the Nigerian petroleum industry in the last three decades.
“It is also presumed that the PIA will promote efficiency and make the industry more competitive.
“Regrettably, the promoters of the PIA may not have thought through the immediate impact on revenue accruals to the Federation Account and as such, the PIA has effectively and substantially reduced revenue that ordinarily should have accrued into the Federation Account.”
It added, “The creation of multiple funds, funded directly or indirectly from the Federation Account is a major issue. The adoption of the dual tax regime in the Petroleum industry (Hydrocarbon Tax and Company Income Tax) as opposed to single tax regime (Petroleum Profit Tax) has its own advantages and disadvantage.”
“The effective tax rate in the PIA is significantly lower than pre-PIA. In conclusion it can be argued that the PIA has systematically and substantially reduced the revenue accruable to the Federation Account.”
The PIA 2021 was passed into law by the President, Major General Mohammadu Buhari (retd.), in August last year after the bill had dragged at the National Assembly for more than two decades.
Outline some of its envisaged challenges to the bill, RMAFC stated that the law was silent on the definition of “frontier basin” and host community.
It urged the Nigerian Upstream Petroleum Regulatory Commission – a creation of the PIA, to adequately define “frontier basin” and the word “Settlors” or license holders as contained in the definition of “host community.”
“These definitions have revenue implications and should not be taken lightly. This lack of clarity can create uncertainties and disputes, particularly the affected parties define them in different ways,” the commission stated.
The report, however, outlined the expected outcomes of the PIA, as it stated that the envisaged expansion of the sector was expected to make it more profitable for the benefit of everyone, Nigerians and investors alike.
“In the long term, it is expected that the government revenues will increase. The increased revenue will be used to finance critical government projects like transportation infrastructure, expansion of electricity generation and distribution system,” it stated.
It added, “With the creation of the Host Community Fund it is expected that there will be reduced hostilities in the oil-producing areas leading to improved crude oil and gas production and increase in federation revenue.”
But it gave a caveat, as the commission said, “All the above positive outcomes will be based on how the PIA is implemented. In the short term, government revenue will drop significantly due to reduced taxes and royalties.
“Security situation in all parts of the country if not resolved quickly may make all the above positive outcomes a mirage.”
In his speech at the event, which was also made available to our correspondent in Abuja, the acting Chairman, RMAFC, Umaru Abdullahi, explained that the oil and gas industry was very important to the country and had a major impact on Nigeria’s economy.
“It is a known fact that the industry contributes less than 10 per cent to the country’s Gross Domestic Product, but accounts for over 80 per cent of Nigeria’s foreign exchange earnings and 60 per cent of its total income,” he stated.
Abdullahi added, “As a result, any adverse change in the industry will have a major and long-term impact on federation revenue. This may be the reason why various governments in the past and present have concentrated on the sector despite various discussions on the need to diversify the Nigerian economy.”
He explained that the RMAFC was one of the 14 federal executive bodies established by Section 153 (1) of the 1999 Constitution of the Federal Republic of Nigeria (As Amended).
