Victor EzejaTrade Union Congress of Nigeria (TUC) has warned against assigning the collection of royalties in the country’s oil and gas sector to Nigeria Revenue Service (NRS) as proposed in the tax reform bills currently in the National Assembly.
The union said it could result in significant revenue losses for the government and also create regulatory burdens among other challenges.
Join our WhatsApp ChannelCurrently, the collection of royalties in the oil and gas industry is performed by Nigerian Upstream Petroleum Regulatory Commission (NUPRC) as provided for in the Petroleum Industry Act (PIA).
In a statement released on Tuesday, TUC said such move could have a negative impact on the economy.
During his appearance on Channels Television’s Sunrise Daily on Wednesday, TUC president, Festus Osifo, explained that there are some technicalities required in calculating royalties to be paid by companies in the oil and gas industry.
According to him, the process involves steady interactions between oil and gas companies and various units and departments of NUPRC.
He expressed worries that if the function is moved to NRS when the bills are eventually passed, International Oil Companies (IOCs) and indigenous ones could shortchange the federal government in terms of what they pay as royalties.
Osifo said: “So, in computing royalty for us, it is very technical, and you now want to move that function. So what part of that function will be moved to the Nigerian revenue services? How are we sure that at the end the IOCs, and these indigenous oil and gas producers, will not shortchange Nigerians?”
“How are we sure that when you are doing reconciliation, what will be the interplay between the Nigerian Revenue Service and NUPRC? Is this not going to be another duplication that is going to affect that sector?” Osifo asked.
He pointed out that one of the tools used in administering the royalties is export permit and asked that with the proposal, who is going to be issuing it.
Osifo, who is also the president of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), warned that such a decision could undermine investors’ confidence and advised that all the issues surrounding collection of royalties and responsibilities of government agencies should be properly addressed and a better decision.
“So, what we are asking for is that all these should be properly tailored out so that it will not bring about disinvestment in the oil and gas industry, and it will not hamper the regulations that we have today in the oil and gas industry.”
He noted that before the PIA was passed, they had suggested that international best practice is to have one single regulator for the entire oil and gas industry but the government went ahead and created two agencies (the NUPRC and the Nigeria Midstream and Downstream Petroleum Regulatory Authority).
“I could tell you that that has not really worked too well for the Nigerian oil and gas industry today, because the rivalry that we saw before the PIA was passed, is still there. So, now introducing the third leg to it will disincentivize those that want to invest in this sector.”
Why We Rejected VAT Rate Hike
The TUC also rejected the proposed increase in Value added Tax (VAT) rate from 7.5% to 10%, and defunding of NASENI and TETFund.
The TUC leader stressed that increasing the VAT rate now could have negative impact on Nigerians and the economy generally.
He advised that the government should focus on increasing efficiency in collection of taxes not increasing the rate.
READ ALSO: Why Tax Reform Bills Must Be Passed – Experts
He also said the union is seeking expansion of the tax exemption threshold from N800,000 per annum to N2.5 million to relieve low-income earners the tax burden.
According to him, putting the tax exemption threshold at N800,000 per annum means that those earning the minimum wage of N70,000 per month will be subjected to paying taxes even when the money is not enough due to high cost of things in the country. “The value of our currency has declined significantly. Today, even some one earning N300,000 struggles to survive, that’s the reality that we face today as a people,” Osifo stated.
He said TUC supports the derivation principle introduced in the distribution of VAT, adding that it is a move that could stimulate productivity at the sub-national level and reduce Nigeria’s dependence on rent-seeking economic models.
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
