The month of April in Nigeria was marked significantly by an attempt to revive the oil and gas sector, through a series of ground-breaking executive orders on taxation in the sector. These three executive orders reveal strategies aimed at addressing key challenges, stimulating investment, enhancing local participation, and streamlining regulatory processes within the industry.

This article examines the details of these executive orders, their objectives, legal implications on tax compliance in Nigeria, and their anticipated impact on Nigeria’s oil and gas landscape.

Executive Order I: Incentives For Green Field Developments

The first executive order introduces a suite of incentives to bolster Greenfield developments within Nigeria’s oil and gas sector. These facilities are purpose-built to process crude oil and natural gas into valuable products such as gasoline, diesel, jet fuel, and petrochemicals.

Key Incentives:

• Tax Credits: Up to 30% for non-associated gas Greenfield developments in onshore and shallow water areas. Companies must commence production before 2029 to qualify.

• Investment Allowance: A 25% investment allowance on qualifying expenditures for Midstream projects.

Notably, the executive directory states:

“The gas tax credit shall apply for a maximum of 10 years, after which it shall become a gas tax allowance claimable at the respective rates set out.”

Objectives:

• Foster Investment: These incentives are designed to attract investment into the sector.

• Promote Gas Utilization: Encouraging the use of natural gas aligns with global energy transition priorities.

• Economic Diversification: By stimulating economic activity, these measures help diversify Nigeria’s economy.

• Curb Gas Flaring: Reducing gas flaring aligns with environmental goals.

• Value-Added Products: Creating products such as gasoline, diesel, and petrochemicals adds economic value.

These incentives not only stimulate investment but also demonstrate Nigeria’s commitment to sustainable energy practices and economic diversification.

Executive Order II: Presidential Directive on Local Content Compliance Requirements, 2024 (the LCC Directive)

The second executive order focuses on the activities of the Nigerian Content Development and Monitoring Board (NCDMB). It mandates the board to prioritize in-country capacity when approving Nigerian Content Plans (NCPs). This directive aims to prevent the approval of entities without proven substantive capacity, fostering genuine local participation and involvement of indigenous operators.

Key Provisions:

• Prioritization of In-Country Capacity: The NCDMB is instructed to approve only those NCPs that demonstrate substantial local capacity.

• Elimination of Shell Companies: The directive explicitly states: “The Board shall not approve a Nigerian Content Plan (NCP) that contains intermediary entities lacking the essential capacity to perform the services.”

Objectives:

• Increase Indigenous Participation: Aligns with the government’s vision to enhance local involvement in the oil and gas sector.

• Stimulate Economic Growth: By fostering genuine local participation, the directive aims to boost the local economy.

• Curb Intermediaries: Discourages the use of shell companies or intermediaries for executing projects, ensuring that benefits directly reach local entities.

This long-awaited order is designed to ensure that only capable and substantial local entities are involved in Nigeria’s oil and gas projects, thereby directly benefiting the local economy and enhancing indigenous participation.

“The Board shall not approve a Nigerian Content Plan (NCP) that contains intermediary entities lacking the essential capacity to perform the services.”

The order frowns on the use of shell companies or intermediaries to execute projects, thereby directly benefiting the local economy.

Executive Order III: Streamlining Approval Processes

The third executive order is designed to streamline approval processes within Nigeria’s oil and gas sector. This includes several significant measures aimed at enhancing efficiency and transparency.

Key Measures:

• Increased Approval Threshold: The approval threshold for production-sharing contracts and joint operating agreements is raised to $10 million.

• Extended Contract Duration: The order extends the duration of third-party contracts.

• Strict Timelines: Mandates strict timelines for approvals under the Nigeria Oil and Gas Industry Content Development Act.

Objectives:

• Ease of Doing Business: Simplifying the approval process makes it easier for businesses to operate within the sector.

• Reduce Bureaucratic Hurdles: Streamlined processes minimize red tape, speeding up project initiation and execution.

• Promote Transparency: Clearer guidelines and approval timelines enhance transparency in contracting processes.

• Attract Investment: By creating a more predictable and efficient regulatory environment, the order aims to attract both local and foreign investment.

This executive order aims to create a more conducive business environment within Nigeria’s oil and gas sector, encouraging investment through improved efficiency and transparency.

Legal Implications of Executive Orders On Tax Compliance

While executive orders derive their authority from substantive laws, questions about their consistency with existing legislation and constitutional provisions persist. Kenneth Eruk notes “The legal basis of amending tax laws through executive orders has always been an issue of contention.”
The introduction of executive orders amending tax laws in Nigeria could significantly impact tax compliance in several ways:

• Impact on Tax Revenue: The incentives designed to attract investment could reduce immediate tax revenue from the oil and gas sector. However, the long-term goal is to stimulate economic growth, which could ultimately increase the overall tax base.

• Judicial Review and Legal Challenges: The legal basis for amending tax laws through executive orders is contentious. There is potential for judicial review if conflicts with existing laws arise, which could create uncertainty and affect tax planning and compliance strategies.

• Enhanced Investor Confidence: Despite potential legal challenges, the optimism among stakeholders suggests these orders will boost investor confidence. This increased confidence could lead to greater compliance as companies are more willing to engage with the Nigerian market under clearer, more attractive tax regimes.

• Implementation Details: Stakeholders are awaiting further details on implementation. These details will be crucial for understanding the full scope of compliance requirements and ensuring that companies can accurately adhere to the new tax regulations.

Overall, while the executive orders may aim to streamline and improve Nigeria’s tax regime, ensuring compliance with the amended tax laws will require clear communication, effective enforcement, and support for businesses, particularly smaller enterprises.

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