Economic Evaluation of the Dual Petroleum Tax System Proposed in the 2017 Nigeria Fiscal Reform Framework

Abstract

Abstract Petroleum taxation is an instrument of government use to create a crucial rent sharing balance between oil and gas companies and host government. The petroleum profit tax imposed by the Nigerian government on upstream petroleum operators is an example. However, the complexity of the petroleum taxation due to the continued evolution in the international crude oil market dynamics, due to geogolical, technical, economic and political factors, prompts the quest for a tax system that will accrue a fair revenue to the government with acceptable returns to multinational oil companies. The propostion of a dual tax system in the 2012 PIB and 2017 Nigeria Petroleum Fiscal framework is designed to equitably satisfy stakeholders expectations. Concerns on how fair the dual tax system will be to the investor and government motivated the essence of this paper. The paper attempts to evaluate the proposed tax system in PIB 2008, PIB 2012 and Petroluem Fiscal Policy 2017. The paper applied a deterministic R/T system cash flow model for a continental shelf to rank the perfomances of the fiscal terms proposed in PIB 2008, PIB 2012 and in the 2017 NPFP document. From our analysis, we discovered that the economic metrics for the project depicted a better profitability for the operators under a dual tax system than a single tax system within the contex of our cost assumptions and profile. However, the same feat was not recorded for the government take as the dual tax system led to a slight decrease in the government take statistics rather than an increase. We considered this slight decline as a positive trade off that debunks the assumption amongs shareholders that the 2017 NPFPF dual tax system accrues more benefits to the government. Hence, we recommend the implementation of dual tax system as a favourable option for the investors and government.