The Federal Inland Revenue Service (FIRS) recently issued two information circulars aimed at providing guidance to taxpayers regarding the implementation framework for the Presidential Fiscal Incentives on Gas. This initiative comes in response to Executive Order No. 40 issued by the President on 28 February 2024, which focuses on unlocking investment opportunities within the gas sector through tax incentives, exemptions, and remissions.
One of the key provisions of the Executive Order is the introduction of gas credit/allowance for Non-Associated Gas (NAG) greenfield developments in onshore and shallow waters, along with a gas utilization investment allowance for midstream projects. These incentives are designed to encourage investment and development in the gas sector, thereby driving economic growth and energy sustainability.
However, upon reviewing the FIRS circulars, some stakeholders have raised concerns regarding certain aspects of the implementation framework. One notable issue revolves around the calculation and allocation of incentives for midstream gas utilization projects. The FIRS has taken the position that midstream gas companies are entitled to a 25% allowance, as specified in the Executive Order. This stance is based on the qualification of ‘downstream operations’ attached to gas incentives in Section 39 of the Companies Income Tax Act (CITA). However, there is ambiguity regarding whether this interpretation aligns with the intent of the Order, especially since it does not explicitly repeal the relevant CITA provision.
Prior to the issuance of the Executive Order, midstream gas projects had been availing themselves of tax incentives under Section 39, which the FIRS had previously accepted as appropriate. The definition of gas utilization in Section 39 also appears to encompass midstream activities. Therefore, stakeholders argue for clarity and consistency in interpreting the law, particularly in light of Order No. 40’s aim to incentivize gas utilization across all sectors.
Another area of concern highlighted in the FIRS circulars is the calculation methodology for gas credit/allowance for NAG projects. While the Order provides specific criteria and rates for eligibility, there are discrepancies noted in the FIRS’ illustrative calculations. The error primarily lies in the division of production quantity by 1,000 before applying the relevant rates. Stakeholders emphasize the need for accurate calculations to ensure fair and equitable distribution of incentives among eligible projects.
Despite these challenges, stakeholders commend the FIRS for proactively issuing the circulars to provide clarity and guidance. However, they urge swift review and clarification on the identified issues to align with the overarching goal of promoting investment and growth in the gas sector. It’s important to note that while information circulars serve as guidance, they are not legally binding, allowing taxpayers to challenge interpretations that may diverge from their understanding or the intent of the law.
In conclusion, the issuance of information circulars by the FIRS reflects a commitment to transparency and clarity in tax administration. Addressing concerns and ensuring consistency in the application of incentives will be crucial in fostering a conducive environment for investment and development within Nigeria’s gas sector.
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