22 December 2021

The Nigerian Guide On Relevant Changes To The Fiscal Framework In The Petroleum Industry Act, 2021

S.P.A. Ajibade & Co.


S. P. A. Ajibade & Co. is a leading corporate and commercial law firm established in 1967. The firm provides cutting-edge services to both its local and multinational clients in the areas of Dispute Resolution, Corporate Finance & Capital Markets, Real Estate & Succession, Energy & Natural Resources, Intellectual Property, and Telecommunications.
On 16th of August 2021, the long-awaited Petroleum Industry Act 2021 ("PIA" or "the Act") was assented and signed into law by President Muhammadu Buhari.
Nigeria Energy and Natural Resources
To print this article, all you need is to be registered or login on


On 16th of August 2021, the long-awaited Petroleum Industry Act 20212 ("PIA" or "the Act") was assented and signed into law by President Muhammadu Buhari.3 The presidential assent of the PIA came after over 20 years of deliberations at the National Assembly level.

With its enactment, the PIA became the principal Act for the regulation of the Nigerian oil and gas sector, repealing various extant laws regulating the sector. Some of the laws which have been repealed by the PIA are the Petroleum Act 2004, Associated Gas Reinjection Act 1979 and its amendments, Hydrocarbon Oil Refineries Act No. 17 of 1965, Nigerian National Petroleum Corporation (Projects) Act No. 94 of 1993, Nigerian National Petroleum Corporation (NNPC) Act 1977 (as amended)4, Petroleum Profit Tax Act (PPTA) 2004,5 and Deep Offshore and Inland Basin Production Sharing Contract Act (DOIBPSCA) 1993 and its 2019 amendment.6

The PIA has made major changes to the fiscal regime in Nigeria's oil and gas sector, resulting in an overhaul of that sector's current fiscal regime. These major fiscal changes introduced by the Petroleum Industry Act are encompassed in Chapter 4 of the Act.

The Petroleum Industry Fiscal Framework (PIFF)

Chapter 4 of the PIA introduces the Petroleum Industry Fiscal Framework (PIFF), which has the following objectives:

  1. To establish a progressive fiscal framework that encourages investment in the Nigerian petroleum industry, balancing rewards with risk and enhancing revenues to the Federal Government (FG);
  2. To provide a forward-looking fiscal framework that is based on core principles of clarity, dynamism and fiscal rules of general application;
  • To establish a fiscal framework that expands the revenue base of the Federal Government of Nigeria, while ensuring a fair return for investors;
  1. To simplify the administration of petroleum tax; and
  2. To promote equity and transparency in the petroleum industry fiscal regime.7

Significant Fiscal Policies Introduced by Chapter 4 of the Petroleum Industry Act:

  1. Change in Tax Regime

The PIA splits the extant Petroleum Profits Tax (PPT) into two, namely: Hydrocarbon Tax (HT)8 and Companies Income Tax (CIT). The HT, together with CIT, are chargeable to companies engaged in upstream petroleum operations,9 subjecting these companies to a dual income tax regime. While the applicable CIT rate will be in line with the provisions of the Companies Income Tax Act (CITA),10 the HT rate will be graduated and dependent on the area of operation and the period the mining lease was granted.11 Inversely, companies with downstream and midstream petroleum operations will only be taxable in line with the provisions of the CITA.12

Under the new tax regime, the income tax rate applicable to holders of Petroleum Mining Licences (PMLs) is capped at 60% while the income tax applicable to the holders of Petroleum Prospecting Licences (PPLs) is 45%, which is a reduction from the 85% rate applicable under the PPTA regime.13

  1. Application of Fiscal Amendments

All fiscal amendments as contained in Chapter 4 of the PIA, including the change in tax regime, shall only apply to operational companies in the petroleum industry, upon the conversion of existing Oil Prospecting Licences (OPLs) and Oil Mining Leases (OMLs) to Petroleum Prospecting Licences (PPLs) and Petroleum Mining Licences (PMLs), termination or expiration of unconverted licenses, and renewal of OMLs.14 Consequently, holders of OPLs and OMLs that do not convert to PMLs will continue to be taxed under the current PPTA regime, pending the expiration of their licences. However, these holders may choose to convert their licences before expiration by executing conversion contracts.

  1. Ascertainment of crude oil revenue

Under the PIA, Section 262 provides that the crude oil revenue of a company, in any accounting period, shall be the value of any chargeable oil adjusted to measurement points based on proceeds of all chargeable oil sold and value of chargeable oil disposed.15 The value of chargeable oil disposed shall be based on the aggregate value of crude oil determined for royalties for all fields.16 Therefore, extraction, storage and transportation costs will no longer be added in determining taxable revenue under the new tax regime, as was the case under the PPT regime.

  1. Allowable deductions

In computing the adjusted profits of companies involved in upstream petroleum operations, the following expenses have been added to the extant list of allowable deductions: rents incurred by the company for the period pursuant to a petroleum mining lease or petroleum prospecting licence, all royalties in respect of crude oil and associated gas, for which liability was incurred and were paid by the company during that period, operating expenses for upstream petroleum operations including expenses directly incurred for repair of premises, plant, machinery or fixtures, any expenditure, tangible or intangible directly incurred in connection with the drilling of the first exploration well and the first two appraisal wells in the same field etcetera.17

  1. Non-allowable Deductions

In computing the adjusted profits of companies involved in upstream petroleum operations, the following expenses are now included in the extant list of non-allowable deductions: penalties and gas flare fees, expenditure for the purchase of information on existence and extent of petroleum deposits, except in respect of geophysical, geological and geochemical data and information, financial/ bank charges, bad debts, interest on loans, arbitration and litigation costs, costs incurred outside Nigeria including head office, shared costs, research and development cost and affiliate costs etcetera.18

  1. Chargeable profits and allowances

The PIA provides that the chargeable profits of any company for any accounting period shall be the amount of the assessable profits of that period after allowable deductions have been made and includes the aggregate amount of capital and production allowances due to the company.19

  1. Chargeable Tax

The chargeable tax for any accounting period of a company shall be a percentage of the aggregated chargeable profit for that period. For holders of petroleum mining leases with respect to offshore and shallow water areas, the chargeable tax shall be 30% of crude oil profits while for holders of petroleum prospecting licenses for onshore and shallow waters, the chargeable tax shall be 15% of crude oil profits.20

  1. Consolidation of Costs and Taxes

Companies involved in upstream petroleum operations across terrains, are now allowed to consolidate costs for the purpose of companies' income tax21 while companies involved in upstream petroleum operations related to crude oil across terrains22 are allowed to consolidate costs for hydrocarbon tax solely in respect of assets in which it holds licenses and leases in accordance with the two categories of chargeable tax provided in Section 267 of the PIA.

  1. Change in Penalty Regime

The PIA introduces a stricter penalty regime for defaults or offences committed under the fiscal framework of the petroleum industry. For instance, the late filing of actual and estimated HT and CIT returns attracts a penalty of ?10,000,000 for the first day of default and ?2,000,000 for each subsequent day of the offence's continuance.23 Where no penalty is prescribed for an offence, such an offence will attract an administrative penalty of ?10,000,000 for the first day of default and ?2,000,000 for each subsequent day of the offence's continuance.24 Conversely, where a person is adjudged guilty of such an offence and convicted by a court, the person shall be liable to pay a fine of ?20,000,000 or any other sum as may be prescribed by the Minister of Finance and ?2,000,000 or such other prescribed sum, for each subsequent day of the offence's continuance. Alternatively, such a person may be subjected to imprisonment for a term of six (6) months.25 The above-mentioned penalties and fines are not tax deductible.


The introduction of the PIA has ushered in a new era in Nigeria's petroleum industry, with its extensive overhaul of the previous fiscal framework, and it is hoped that in due time, the notable fiscal and other changes made will bring about much-needed growth and development in the industry. Stakeholders will do well to acquaint themselves with both the fiscal provisions of the new PIA and the lawyers who advise on same.


1 Miracle Eme, Associate, Dispute Resolution and Energy & Natural Resources Department, SPA Ajibade & Co, Lagos, Nigeria.

2 FGN Official Gazette No.142, Vol.108, Govt. Notice 134.

3 Oyero, Kayode, 'Buhari signs Petroleum Industry Bill into law", The Punch (Lagos: 16th August 2021), available at, accessed on 18th August 2021.

4 This Act will be repealed when NNPC ceases to exist pursuant to section 54(3) of the PIA.

5 This Act will be repealed upon the conversion of existing Oil Prospecting Licences (OPLs) and Oil Mining Leases (OMLs) to Petroleum Prospecting Licences (PPLs) and Petroleum Mining Licences (PMLs).

6 See Section 310(1) of the PIA.

7 See Section 258(1) of the PIA.

8 HT shall be chargeable on the profits of upstream petroleum companies in the onshore and shallow water. HT applies to crude oil, field condensates and natural gas liquids from associated gas, and does not apply to associated gas, non-associated gas and frontier acreage. HT will not apply to deep offshore projects in order to encourage exploratory activities in that area.

9 See Section 260 of the PIA.

10 Cap C21, Laws of the Federation of Nigeria, 2004.

11 Akinbolajo, Lanre & Olaleye, Olayinka, 'Petroleum Industry Bill: Overview of Key Fiscal Changes', available at: -changes, accessed on 22nd November 2021.

12 Ibid. See also, Section 302 of the PIA.

13 'Petroleum Industry Act - A New Era for the Nigerian Oil and Gas Upstream Industry?', available at:, accessed on 22nd November 2021.

14 'Petroleum Industry Bill (PIB) 2020 – A Game Changer?', available at: ng/pdf/tax/petroleum-industry-bill-(pib)-2020-%20a-game-changer.pdf, accessed on 23rd November 2021.

15 Section 262(1) of the PIA.

16 Section 262(2) of the PIA.

17 Section 263 of the PIA.

18 See Section 264 of the PIA.

19 See Section 266 of the PIA.

20 See Section 267 of the PIA.

21 See Section 272(1) of the PIA.

22 See Section 272(2) of the PIA.

23 Sections 277 (4), 280 (6) and 302(14) of the PIA.

24 Section 297(1) of the PIA.

25 Section 297(2) of the PIA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

See More Popular Content From

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More