In this article we will be looking at how Nigeria introduces fiscal incentives for gas companies and what the president said about gas tax credit.
The Nigerian Government has announced a number of fiscal incentives for gas companies operating in different segments of the Nigerian petroleum industry, with the aim of growing the country’s gas output and reserves. In an executive order titled: ‘Oil and Gas Companies (Tax Incentives, Exemption, Remission, Etc) Order, 2024’, President Bola Tinubu said the incentives would transcend non-associated gas (NAG) greenfield development, the midstream gas sector and deepwater oil and gas projects. Tinubu said the guidelines for the implementation of these directives would be issued by the Minister of Petroleum Resources in collaboration with the Federal Inland Revenue Service (FIRS), Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) and any other relevant stakeholder.
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For Non-Associated Gas (NAG) projects in greenfield developments in onshore and shallow water locations, with first gas production on or before the first day of 2029, Tinubu proposed a tax credit of $1 per 1,000 cubic feet of gas or 30 per cent of the fiscal gas price, whichever is lower, where the hydrocarbon Liquids (HCL) content does not exceed 30 barrels per million Standard Cubic Feet (SCF).
In a situation where the HCL exceeds 30 barrels per million SCF but does not exceed 1,000 barrels per million SCF, Tinubu said there shall be a gas tax credit at the rate of US$0.50 per thousand cubic feet or 30 per cent of the fiscal gas price, whichever is lower. He added that any other greenfield NAG project with first commercial production after 1st January, 2029 shall be eligible for gas tax allowance at a rate of US$0.50 per thousand SCF or 30 per cent of the fiscal gas price, whichever is lower, provided that the Hydrocarbon Liquids content does not exceed 100 barrels per million SCF.
The president stated that the gas tax credit shall apply for a maximum of 10 years, after which it shall become a gas tax allowance claimable at the respective rates, adding, however, that the gas tax credit shall not exceed the company’s income tax payable for that year by that company; while the fiscal gas price for calculating the gas tax credit shall be the same price used for determining royalties under the Petroleum Industry Act (PIA). In the midstream sector, Tinubu introduced the Midstream Capital and Gas Utilization Investment Allowance, granting a gas company allowance on qualifying expenditure on plant and equipment incurred by the company in respect of any new and ongoing project in the midstream oil and gas industry.
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He said the gas utilization investment allowance shall be granted as an allowable deduction from the assessable profits of the eligible company from the year of purchase of the relevant plant and equipment and not be considered in ascertaining the residue of qualifying expenditure incurred on such plant and equipment. He further stated that the rate of the gas utilization investment allowance to be allowed to a company shall be 25 per cent of the actual expenditure incurred on such plant and equipment purchased. For deep water oil and gas projects, Tinubu said the government would introduce fiscal incentives to ensure that investments for deep water oil and gas projects achieve a competitive Internal Rate of Return (IRR).