An Overview of the Fiscal Provisions of the Petroleum Industry Act (PIA) 2021


By Chisom Nwadike


It took over a decade to pass the new Petroleum Industry Act (PIA) but on August 16th, 2021, President Muhammad Buhari signed the harmonized bill into law. The Act introduces far-reaching reforms which seek to transform the Nigerian Petroleum Industry. The Act is one of a kind because of its wide consultation among the petroleum stakeholders and the painstaking revision which has been ongoing since 2012. The Act although recent has been long coming because of the rot and corruption which has bedeviled the Oil and gas sector. This makes the Act especially timely since Nigeria loses billions of dollars to the several leakages in the Petroleum sector. Therefore, with the passage of the new Act, It is hoped that the Act would cure the ills in the petroleum sector and position Nigeria as a global leader in the oil and gas sector.

Asides the many unique provisions of the Act, the fiscal provision of the act as contained in Chapter 4 is an interesting provision which deserves exploration among lawyers, tax experts and technocrats. The tax framework of the Act seeks to repeal the Petroleum Profits Tax Act (PPTA) and incorporates an amended provisions of the Companies Income Tax Act (CITA) which is applicable to the upstream companies. Also, it introduces a new tax known as the Nigerian Hydrocarbon Tax (NHT). The purpose of the PIA fiscal framework is to create an inclusive, dynamic, clear, neutral, and progressive tax system.[1] This fiscal provision will apply upon Petroleum Prospecting Licenses (PPL) and Petroleum Mining Licenses (PML), termination or expiration of unconverted licenses and renewal of Oil Mining Licenses (OML).[2] It is also hoped that with the new fiscal provision, Nigeria will be opened to foreign investment and encourage new equities while generating revenue for the government.[3] The Federal Inland Revenue Service (FIRS) have been saddled with the task of collecting these revenues on behalf of the government.[4] These taxes and several provisions will be the focal point of this discuss.


The Nigerian Hydrocarbon Tax is the new tax that is payable by companies engaged in the upstream petroleum operations in the onshore and shallow water.[5] It is a tax on the emissions caused by the burning of coal, gas and oil and it is aimed at reducing the amount of greenhouse gases. The Hydrocarbon tax is a particularly interesting tax to be paid because of how important it is to the environment. The Hydrocarbon tax is a resource tax which will make Nigeria set the pace for a cleaner and greener environment in Africa. The New Hydrocarbon Tax applies to crude oil, condensates and natural gas liquids produced from associated gas which is to be charged at varying rates depending on the license.[6]

The rates of Hydrocarbon Tax under the Act are as follows:[7]

  1. PML – 30% of profits with respect to onshore and shallow water operations
  2. PPL – 15% of profits with respect to onshore and shallow water operations


The Act introduces some additions to the list of Allowable and Non-Allowable Deductions as prescribed by the repealed Petroleum Profits Tax Act (“PPTA”). Remarkably, the Act introduces a reasonability test as the basis for deduction of Hydrocarbon Tax unlike the PPTA which has a strict deductibility test.[8] However, the Act didn’t state what could be tagged as a reasonable deduction or how to go about using the reasonability test which makes it difficult to determine what will not constitute a reasonable cost. The following expenses are allowed in the computation of NHT:

  1. all royalties incurred in cash and kind remitted to the Federation Account related to production, profit, risk service contracts or other contractual features under a model contract;
  2. contributions approved by the Commission for the purpose of decommissioning and abandonment, with any surplus/residue liable to tax at the end life of the field;
  3. Costs of gas reinjection wells, which are re-injecting natural gas that otherwise would be flared, subject to the Commission’s ratification; and
  4. contributions approved by the Commission made to the Host Community Development Trust, Environmental Remediation Fund and Niger Delta Development Commission and other similar contributions

The Act also adds to the non-allowable deductions as prescribed by the repealed PPTA and they are as follows:[9]

  1. fees paid as penalty for natural gas flaring or any imposition relating to natural gas;
  2. bank charges, arbitration and litigation costs, bad debts and interest on loan;
  3. costs incurred in Nigeria including those for running the head office or affiliate costs, shared cost, research and development costs or other like shared indirect production costs;
  4. production bonuses, signature bonuses paid for acquiring of petroleum deposits, bonuses or fees paid on the renewal of a PPL, PML, marginal field or fees paid for assigning the rights to another party;
  5. contribution made to a pension, provident or society, scheme or fund approved by the National Pension Commission subject to conditions given by FIRS;
  6. all custom duties; and
  7. costs exceeding the cost price ratio limit of 65% of gross revenue


The PIA has retained production-based royalty rates but added price-based royalty rates to be calculated at a field basis.[10] Royalties are paid directly into the Federation Account and on varying rates which will be verified by the Commission[11]. However, royalties by price are payable through the Nigerian Sovereignty Investment Authority.[12] The Act stipulates those royalties are to be determined every month at the measurement basis. Here is the breakdown:

Royalties by production:

  2. SHALLOW WATER (up to 200m water depth)- 12.5%
  3. DEEP OFFSHORE (with monthly production above 15,000 barrels per day)- 7.5%
  4. DEEP OFFSHORE (with monthly production less than 15,000 barrels per day)- 5%

Royalties by price:

  1. BELOW US$ 50 PER BARREL- 0%
  2. AT US$ 100 PER BARREL – 5%
  3. ABOVE US$ 150 PER BARREL- 10%

From the foregoing, it can be deduced that operators in the deepest fields will now pay royalties when previously none had applied under the PPTA. Furthermore, there is no royalty by price for frontier acreage.[13]


The PIA provides for deduction of capital allowances on qualifying capital expenditures in lieu of depreciation before arriving at the taxable income of petroleum companies.[14] However, unlike the PPTA, the PIA removes the restriction of 15% on capital allowance. In addition, the PIA deletes the petroleum investment allowance on qualifying expenditure. The Act makes provision for annual allowance and pre-production capital expenditure[15] which is only claimed in the accounting period in which the relevant asset is used for the purpose of petroleum operations. The pre-production capital expenditure is a remarkable feature of the PIA which makes it easy to claim expenditure before the accounting period, but the treatment of pre-production expenditure will depend on its nature. The PIA also deletes the definition of in use and exclusion of certain expenditures. The Annual Capital Allowances rates as provided in the Act can be seen in the Fifth Schedule.


In the Sixth Schedule, the PIA introduces the Production Allowance to replace the investment tax credit and investment tax allowance as provided by the Deep Offshore and Inland Basin Production Sharing Act which is to apply to PMLs after the commencement of the Act. The production allowance for new acreage will be determined considering onshore areas, shallow waters, and deep offshore and frontier basins. Detailed procedures for determining the production allowance will be made by regulations.


All deductible costs under the HT will be subject to a cost price ratio limit of 65% of gross revenues which seeks to replace the restriction to capital allowance claimable in a given accounting year under PPTA. Therefore, if there is any excess cost not deducted due to the restriction, then it may be deducted in subsequent years of assessment.


Some of the other key provisions of the PIA include separation of upstream and midstream operations for taxation purposes, the provision of the Income Tax (Transfer Pricing) Regulations, 2018 as the basis for determining artificial transactions, set off payments made in error and consolidation of cost for HT for purpose of Companies Income Tax.[16]


The PIA stipulates that companies, concessionaires, licensees, lessees, contractors, or subcontractor involved in upstream, midstream, and downstream will be liable to Companies Income Tax. Gas utilization incentives will apply to midstream operations and large-scale gas utilization industries. There is an additional 5-year tax holiday will be granted to investors in gas pipelines The rate of CIT under CITA is retained for payment[17] under the PIA but Allowable and non-allowable deductions have been modified to include:

Allowable deductions[18]

  1. rents and royalties incurred with respect to commercial sale, delivery or disposal of crude oil, condensates and natural gas and payments to the Federation Account related to production sharing, profit sharing, risk service contracts or other contractual features
  2.  – any amount contributed to any fund, scheme or arrangement for abandonment and decommission, petroleum host communities’ development trust, provided that the fund/ scheme/ arrangement is approved by the Commission or Authority and any surplus or residue of such funds shall be subject to tax under CIT
  3. other deductions as may be prescribed by the Minister of Finance by Order published in the Gazette

Non-Allowable deductions[19]

  1. expenditure for the purchase of information on the existence and extent of petroleum deposits except in respect of geophysical, geological, and geochemical data and information
  2.  any penalty incurred, including natural gas flare fee or charges
  3.  production bonuses, signature bonuses paid for acquisition of rights on petroleum deposits, signature bonuses or fees paid for renewing PML or PPL or fees paid for the assignment of rights to other parties including for marginal field
  4.  additional costs from tax gross-up clauses.

In addition, for remittance in Naira, any late payment of tax due from companies involved in upstream operations carries an interest at the prevailing NIBOR rate plus 10% from the due date until paid. Also, for remittance in foreign currencies, any late payment of tax due from companies involved in upstream operations carries an interest at the prevailing LIBOR[20] rate plus 10% from the due date until paid[21]


A quick perusal of sections 298-301 of the PIA introduces stricter penalties to encourage compliance, discourage default and ensure integrity among stakeholders in the petroleum sector. Consequently, it is advised that taxpayers should ensure strict and timely compliance with the provision of the Act to avoid paying unnecessary fines or penalties. The PIA increases penalty for not filing income tax returns from N10,000 on the first day of default to N10,000,000 and from N2,000 for every subsequent day to N2,000,000 or any sum as prescribed by the Minister of Finance.[22]


The fiscal provision of the PIA although not a perfect provision is a remarkable way to start addressing the myriads of challenges in the petroleum sector. The provision is set to address most of the tax issues to an extent although to what extent only time will tell. To my understanding, the tax provision of the PIA is competitive, reasonable, and balanced and it strikes a balance between short term demands and long-term investments. The provisions will help transform the Nigeria oil and gas industry, encourage investments, and remediate the environment which should be our long-term goal given that we should be thinking of transitioning from fossil fuel to clean energy. However, one of the biggest concerns with the PIA, is whether the fiscal provisions are competitive enough in certain provisions in relation to comparable jurisdictions. The Royalties although increased may not be competitive enough in comparisons to other jurisdictions. Also, what will not constitute a “reasonable” cost in the absence of an adequate provision in the enabling law will be worrisome to stakeholders who will leave it to the interpretation of the court in the event of a dispute. Overall, the tax provisions should help to transform the Nigeria oil and gas Industry.

Chisom Nwadike writes from Abuja. He can be reached at


[1] Section 258 of the Petroleum Industry Act (PIA) 2021

[2] The provisions of this Act shall not apply to holders of Oil Prospecting License (OPL) and Oil Mining License (OML). Section 303

[3] Section 100

[4] Section 259

[5] Section 260 & 261

[6] It doesn’t apply to associated and non-associated natural gas and frontier acreages.

[7] Section 260 (1)(b)

[8] Section 263 (1)

[9] Section 264

[10] Section 306

[11] Nigerian Upstream Regulatory Commission

[12] Para 11(3) Seventh Schedule

[13] Frontier acreages means any or all acreages in an area or land in Nigeria defined as a frontier in a regulation issued by the commission (Para 11(2) of the Seventh Schedule

[14] Para 1(c) Fifth Schedule

[15] Paragraph 2 and 5 of the Fifth Schedule

[16] Section 272

[17] 30% of the profit

[18] Section 302 (11)

[19] Section 302 (12)

[20] London Interbank Offered Rate

[21] Section 302 (16)

[22] Section 297 (1) (2)

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