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IMPACT OF
PETROLEUM SECTOR REVENUE AND ECONOMIC GROWTH
ABSTRACT
The basic
reasons for taxation in any economy cater on the need to raise revenue for
economic and social development and to guide taxpayer’s behavior. Revenue from
taxation accounts for over 80% of government earnings in Nigeria, hence special
attention is often paid by tax experts, economists and the larger public on how
such revenue is being disbursed by government among the various economic
sectors that makes up the country. This study, therefore, attempts to evaluate
the impact of taxation as a source of governance paying special emphasis on
petroleum profit tax over a period of twenty years. Data were collected through
questionnaires from respondents and statistical bulletins of the Central Bank
of Nigeria. Result were presented in tabular form. The ordinary least square
method of data analysis was used for the analysis of the data collected from
the Central Bank of Nigeria (CBN). The result of the findings showed that
taxation as a source of government income has significant impact on government
revenue and expenditure, but despite such contribution to government revenue
generation the country’s GDP is still low. As a result of this finding, it was
recommended that the government should take steps to meet its socio-political
and economic obligations to the citizenry as this will lead to a growth in GDP.
Finally, the study underscores the urgent need for the improvement of the tax
information system to enhance the evaluation of the performance of the Nigeria
tax system and facilitate adequate macroeconomic planning and implementation.
CHAPTER ONE
INTRODUCTION
Taxation is
one of the oldest and most important source of government revenue in Nigeria.
It has been in existence even before the amalgamation of Nigeria in 1914 as a
political entity. It occupies a central place in the revenue generation of the
government and control.
Oil and
crude oil production and the revenue derived from it remains the prime mover of
Nigeria economy. as at today the country’s major balance of payment, exchange
rate policy, monetary and fiscal policies are dependent on revenue from oil.
Revenue from
oil has played a vital role in the execution of various national development
plans and still continue to do so. During the country’s first plan period
(1962-1968), the control of the oil industry was solely in the hands of the
multinationals. Oil royalties and petroleum by the oil companies under the
Petroleum Profit Tax Act of 1967 (as subsequently amended).
Initially,
the 1957 Act established the basic principles of equal sharing of profit
between government and oil companies. This was achieved by fixing the rate of
tax, certain receipt of government in other forms, such as rent and royalties and
also duties charged by federal and state government in Nigeria. However
amendment in early 1967 introduced more favourable features as far as
government was concerned. Following the broad pattern already established in
those major oil producing countries whose governments were members of OPEC
(Organization of Petroleum Exporting Countries).
The
industries also contributes to the country’s balance of payment indirectly
through the inflows of foreign exchange to purchase Nigeria’s currency so as to
meet local commitment such as contractors and suppliers bills, salaries and
wages and labour dues paid on behalf of the suppliers of crude oil export.
The most
noticeable source of Nigeria revenue and foreign exchange earnings to the
country is the oil. This accounts for as much as 90% of the country’s total
export earning and total revenue of government.
With this,
so much attention is given to administration of petroleum profit tax. However
the first commercial production of oil in the world took place in Romania and
the united state in the 1850s.
Commercial
discovery of oil in Nigeria did not take place until 1950s although the shell
BP had earlier started some exploration work shortly before the Second World
War.
Nigeria is
the largest producer and exporter of crude petroleum in Africa South of the
Sabara.
Nigeria is a
member of the organization of petroleum exporting countries (OPEC).
It’s good
quality varies between light crude of 45o average of 32o API and heavy crude of
21o API with weighted average of 32o API.
The Nigeria
oil has an incredible low sulphur content averaging only 0.2% of all other
major producer only Libya and Indonesia have qualities which may be regarded as
comparable.
Taxation of
petroleum operation started in 1959 with the enactment of PPT-Petroleum profit
tax. The petroleum profit department is responsible for the assessment and
collection of:
a) PPT from exploration and producing
companies.
b) CIT from oil servicing companies.
c) CIT from oil marketing and pioneer
companies
d) Education tax oil companies that are
liable to either PPT or CIT.
No matter
where an oil producing or servicing company or pioneer company is located in
Nigeria, its tax matter are handed by the petroleum profit department, unlike
the CIT where the registered address of the business is used to determine
registration. The law and agreement that govern the PPT law collection are as
follows:-
a) PPT Act of 1959 as amended to date.
b) Associated Gas Fiscal Arrangement
(AGFA) of 1997, 1998 and 1999 Budget Decree no. 18, 19 and 20 of 1998 provides
more details.
c) Production sharing control (PSC) of
1993. The PSC deals with exploration and production of deep offshore
territorial water of Nigeria. Decree No. 9 of 1999.
d) Memorandum of Understanding (MOU) of
2000. It was signed in July 1999 and effective from January 2000. By the
provision of selection 55 of PPTA a company that is liable to the PPT cannot be
liable to CIT on the same income.
STATEMENT OF
THE RESEARCH PROBLEM
Petroleum
Profit Tax is a tax paid by oil company involved in oil exploration and
marketing. With the production of 5,100 barrels per day in 1958, the volume of
production in the country. Multiplied impressively over the year to 2.3 million
barrels per day in 1979. Until recently when the problem of Niger-Delta began
to affect production by over 30% of cut in production. Little or nothing
compared to what is supposed to be realized from petroleum profit tax mainly
because of these factors.
· The calculation of
petroleum profit tax is demanding partly as a result of the complexity of
petroleum operation and partly because of the legislation in Nigeria.
· The administration of
petroleum profit tax at the highest level has taken a political dimension due
to the enormous amount involved. This has been married by corruption with most
recent case of the Halliburton multinational bribery scandal, which the case
never, saw the light of the day in Nigeria.
· The chargeable profit are
based on national price (referred to as posted) and partly because certain
expenditure items are treated differently e.g. fiscal allowance rather that
deprecation.
The tax is
also reduced in respect of certain payments to government known as offsets in
Nigeria. Such as royalties on locally produced oil, non-productive rents
incurred by the company during that period and custom duties on essential items
and finally investment tax credit. This factor of tax reduction was before
January 1st 1995. Only companies engaged in petroleum operation pay tax at posted
price.
In the light
of the above, the relevant research questions are:
1. What is the relationship between
revenue from Petroleum Profit Tax (PPT) and Gross Domestic Product (GDP)?
2. Has the Petroleum Profit Tax Act of
1967 as amended for the collection and usage by federal government increased
the expected development of the nation in general?
3. What is the relationship between
revenue from petroleum profit tax and total tax revenue?
RESEARCH
OBJECTIVE
The objective
of this research work includes the following:
1. To examine the relationship between
revenue from Petroleum Profit Tax (PPT) and Gross Domestic Product (GDP).
2. To examine if the Petroleum Profit
Tax Act of 1967 as amended for the collection and usage by the federal
government has increased the expected development of the nation in general.
3. To examine the relationship between
revenue from petroleum profit tax and total revenue.
STATEMENT OF
HYPOTHESIS
This aspect
of the research work is concerned with the acceptance or rejection of decision.
The research
hypothesis relevant to the above stated questions and objective were:
1. There is a positive relationship
between revenue from Petroleum Profit Tax (PPT) and Gross Domestic Product
(GDP).
2. The Petroleum Profit Tax Act of 1967
as amended for the collection and usage by federal government has increased the
expected development of the nation in general.
3. There is a position relationship
between revenue from petroleum profit tax and total tax revenue.
SCOPE OF THE
STUDY
This study
covers the adoption, implementation, impacts and problem of PPT collection and
recommendation on the (PPTA) in Nigeria. Also the subject matter of this study
is “Tax Administration from Petroleum Profit in Nigeria”.
The time period for the research is for
the period of five years (2004 to 2008) fiscal year.
The sample size is more concerned with
Nigeria’s Federal Inland Revenue Service of Edo State. Geographically, the
study which will be specifically be restricted to Edo and Delta States in
Nigeria.
RELEVANCE
AND SIGNIFICANCE OF THE STUDY
This
research work is being undertaken in order to bring to light the bright
prospects and impact of PPT as a source of revenue in Nigeria and as it affects
the general price level of economic activities in the country.
Much
attention of revenue generated in Nigeria is focused on the oil industry, which
made this research most significant. Yet it has not really attended it full
potential through it generates over 90% of government revenue.
Petroleum
profit tax administration is very significant in the sense that, if the
proceeds are well put into use and accounted for, it will yield almost double
of what is expected and the immediate impact of these will be enormous on all
aspect of Nigeria economy.
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