A new report by the Socio-Economic Rights and Accountability Project (SERAP) has revealed how over US$8 billion oil and gas assets were sold to Nigerian entities – especially onshore fields –between 2005 and 2015, and how the failure of companies to pay Capital Gains Tax (CGT) on the sale of the assets is fuelling poverty, underdevelopment and inequality in Nigeria.
The report also revealed that the divestment of assets by international oil companies has not translated into commensurate increase in revenue arriving in the Nigerian Government’s coffers from taxes.
According to information obtained from the Federal Inland Revenue Service (FIRS) for the report, the governments of Umaru Musa Yar’Adua and Goodluck Jonathan failed to collect CGT on the sale of Addax Petroleum to Sinopec in 2009 from divestment of assets worth $2.5 billion.
The Goodluck Jonathan government also failed to collect tax on the transfer of Conoco Phillip Oil Company Nigeria Limited to Oando Hydrocarbon (Now Oando Oil Limited) through the acquisition of the shares of Conoco Phillips in Canada for US$1.79 billion. The shares were acquired by Oando Energy Resources Canada.
The report is calling on the authorities to urgently “recover any possible past-unpaid dues, and for improvement in the collection and estimation of capital gains tax in the Nigerian oil sector.”
The report titled Impact of non-payment of Capital Gains Tax (CGT) and other Levies in the Oil and Gas Sector on the Socio-Economic Development of the Countrylaunched today at the CITIHEIGHT Hotel, Lagos states, “In recent years, economic inequality has soared to unprecedented levels in Nigeria, hampering poverty reduction efforts, fuelling political instability and presenting new threats to the full spectrum of human rights.”
The report also states that, “The political will to improve framework and policies for the determination and payment of capital gains tax in the oil sector could generate much needed revenue for execution of government projects and provision of infrastructure and socio-economic development. As such, an improved framework has the potential to galvanise action to reduce poverty, underdevelopment, unemployment, and inequality.”
The report presented to the media by Mr. Azeez Alatoye and Mrs.Bimpe Balogun urges “the Federal Government to move swiftly to improve the administration of capital gains tax in the oil and gas sector and to identify the loss over a period of time.”
Mr Femi Falana SAN, said at the report launch: “SERAP deserves commendation for the public presentation of this timely report. From the report not less than $270 million has not been recovered by the federal government, the amount recoverable has not been captured due to the refusal of DPR and NEITI to provided requested information on the oil companies that have divested interests in the oil and gas sector. SERAP should proceed to compel the two agencies to supply the information so as to update the report.”
Falana also said, “Just yesterday, the NEITI disclosed that the NNPC and others have withheld the sum of $22.06bn and N481bn from the federation account. SERAP should collaborate with NEITI to collect the huge fund without any further delay. SERAP and the progressive extraction of the civil society must take special interest in the judgment of the Supreme Court which has ordered the federal government to recover 18-year lost revenue from oil giants under the Deepshore Offshore Inland Production Contract Act.”
According to Falana, “The minister of state in the ministry of petroleum resources, Dr. Ibe Kachukwu last year revealed that the amount not recovered was $60bn due to the non-implementation of the law. NIMASA, another agency of the government, has established that oil stolen and discharged in one port in the United States in 3 years has been valued at $12.7bn. So, if the said sum of over $94bn is paid into the federation account Nigeria does not have to go to China begging for loans for infrastructural development.”
“The report calls for massive advocacy and campaign “to force recovery of unpaid capital gains tax over the past 10 years from those who have not accounted for such after disposal of their interest in oil and gas assets.”
The report launch chaired by journalist Richard Akinnola was attended by Dr. Khadija Bellow-Kumo, Deputy Director Oil and Gas Department RAMFAC; Mrs Bimpe Balogun- Immediate past Chairperson of Nigerian Taxation Standard Board; Mr. AbdulMumin Abubakar, Unit Head Monitoring & Evaluation NEITI; and Mr Babatunde Sulaimon, Economic and Financial Crimes Commission (EFCC).
Others at the events are: Mr. Akaa AU theIndependent Corrupt Practices and other Related Offences Commission (ICPC), Abuja; Mr. Oladele Timothy, ICPC Lagos; Mr. Japhet Udeani, ICPC Lagos; Mr. Adebayo Sunday, ICPC Lagos; members of the civil society, academic community, and the media.
All the participants promised to work to ensure the full implementation of the recommendations contained in the report.
The report read in part: “The value of the Nigerian asset is unknown as no capital gains tax returns were filed. In principle, using the size of the same asset disposed, this implies CGT revenue of US$1.5million. A review of the process showed that there was no communication between the DPR and the FIRS in ensuring that there is no revenue loss for the Country as a result of the divestments.”
“Enquiries with the FIRS disclosed that the statutory exemption of sale of shares from the Capital Gains Tax Act 2004 (as amended) has made it impossible to collect tax from the ConocoPhillips and Addax divestments even though the Sale and Purchase Agreement of the Addax transaction is yet to be finalised. This is a typical avenue for loss of revenue from CGT.”
“The Federal Ministry of Finance currently plays a totally passive role on this subject. The ministry should be at the center stage of the whole process and be able to evaluate possibly on annual basis the appropriateness of the CGT computed with a view to determining its adequacy. If the ministry is unable to do this, it should recommend appropriate amendment for legislative changes.”
“The report is also unable to confirm whether the Conoco/Phillips buy out was eligible for the exemption under section 32 of the Capital Gains Tax Act. This is because the Sales and Purchase Agreement supplied to the FIRS was unsigned, and there was none for the proposed Addax divestment.”
“Some companies pay a Capital Transfer Tax to DPR when obtaining approval for the transaction. It should, however, be noted that Capital Transfer Tax does not exist in Nigeria as it was repealed many years ago. There must not be a collection of a non-existent tax charge.”
“The FIRS should verify and confirm the claims by divesting company that the divestment is by a sale of shares. However, it would appear that the main document that could reveal the basis for the divestment, being the sale and purchase agreement, is yet to be provided by either of the parties, even after the deal has been concluded.”
“The ability of the Federal Government of Nigeria to adequately collect its fair share of tax from companies arising from disposal of oil and gas upstream assets is undermined, thereby reducing the potential revenue generation from the sale of assets in the upstream oil sector.”
“Capital gains tax should also be administered and managed transparently and accountably to reduce revenue loss and maximise government take from the oil and gas sector. The 30% rate on the capital gains realised on disposal being proposed under the National Petroleum Fiscal Policy Proposal (NPFP) document should be amended as a rate change in the CGT Act for the oil and gas sector only in the appropriate investment climate.”