Topic: Taxation of Specialized Businesses

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  • 5 Marks

ATAX – May 2017 – L3 – Q4a – Tax Incentives and Reliefs

List five incentives provided by the Federal Government of Nigeria to attract investors to the solid minerals sector.

Oil and Gas are major sources of revenue for the Federal Government of Nigeria (FGN). This has become a burden to the government due to its inability to control the volume of production and price. To ameliorate this burden, the FGN is seeking alternative sources of revenue, and solid minerals have been identified.

Required:
State FIVE incentives put in place by the Federal Government of Nigeria (FGN) to attract potential investors to the solid minerals sector. (5 Marks)

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  • 5 Marks

ATAX – May 2017 – L3 – Q2b – Tax Incentives and Reliefs

List five tax incentives for companies utilizing associated gas in downstream operations.

State FIVE incentives available to a company engaged in the utilization of associated gas. (5 Marks)

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  • 15 Marks

ATAX – May 2017 – L3 – Q2a – Taxation of Specialized Businesses

Explain the concepts of load factor, G-factor, and compute the value of chargeable natural gas sold.

Oron Itu Petroleum Company Limited has been in the Oil and Gas business for several years. The company has just secured its first two contracts to supply consignments of Natural Gas to two companies in Ghana and Gambia.

The consignment to Ghana was valued at N589,000,000 while that to Gambia was valued at N375,500,000.

The relevant arm of the Nigerian National Petroleum Corporation (NNPC) issued Certificates of Export as follows:

Contract No Amount (N) Load Factor
I 589,000,000 580
II 375,500,000 620

The Managing Director, who has just resumed duty, could not understand the meaning of Load Factor. He has approached you as the Tax Consultant to advise him on the points raised.

The table below is provided for reference:

Load Factor G-Factor (% per annum)
500 16.9
600 15.5
700 14.3
1000 13.6

You are required to:

(a) Explain briefly the following:
i. The reason behind having a load factor on the Consignee’s Certificate. (3 Marks)
ii. G-Factor. (1 Mark)
iii. Value of Chargeable Natural Gas. (2 Marks)
iv. Compute the Value of Gas sold. (9 Marks)

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  • 10 Marks

ATAX – May 2019 – L3 – Q7a – Taxation of Specialized Businesses

Provide a report on fiscal incentives in Nigeria’s oil and gas sector, including gas production, exploitation of associated gas, and free trade zone investments.

The Federal Government of Nigeria, in the third quarter of 2018, announced the discovery of a huge hydro-carbon deposit in the Chad Basin area of Borno State. This information has attracted interest from local and foreign investors in the Nigerian oil and gas sector. One such foreign investor is a Japanese billionaire, Mr. Sun Nagasaki, who has investments in oil and gas operations in the Middle East and Latin America.

Mr. Nagasaki is, however, not familiar with the regulations guiding operations and the incentives available to investors in the oil and gas sub-sector in Nigeria. You have been appointed as a tax consultant by Mr. Nagasaki’s representative in Nigeria.

Required:
a. Draft a report addressed to Mr. Nagasaki explaining the following issues of interest:

i. Fiscal incentives available in the gas production phase (2 Marks)
ii. Six incentives for the encouragement of exploitation and utilization of associated gas for commercial purposes (downstream operations) (3 Marks)
iii. Six incentives and fiscal measures that favour and encourage large investment in oil and gas free trade zones (4 Marks)

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  • 20 Marks

ATAX – May 2022 – L3 – Q4 – Taxation of Specialized Businesses

Compute tax liabilities and discuss incentives for Dutse Mines in mining solid minerals

———————————————————————
Question:

As investors and policymakers adapt to the global energy transition in a bid to offer an effective hedge against swings in oil prices, the Federal Government has recognised that it is beneficial for the country to diversify its economy. The attention of the country is now towards the development of the solid minerals sector. The Nigeria Minerals and Mining Act 2007 (as amended) was enacted to regulate the industry. Incentives for operators in the sector are as provided for in Section 5 of the Act.

One of the earliest investors in the mining sector, Dutse Mines (Nigeria) Limited, was granted a mining title by the Mining Cadastre Office (MCO) for exploitation of limestone in Nkalagu in the south-eastern zone of Nigeria in 2008. In spite of so many challenges the company is facing, it has managed to remain afloat in business.

The company has, of recent, been having tax disputes with the relevant tax authority, and your firm of chartered accountants has been engaged to help resolve them. In the 2022 tax returns filed by the company, the major area of dispute between the company and the tax authority was disparity in the treatment of certified exploration and processing expenditure of ₦60,000,000 incurred during the course of the year.

Your firm is provided with the following extracts (and supporting documents) from the books of the company for the year ended December 31, 2021:

Additional Information:

  1. Sundry income included ₦8,500,000 realised as profit from disposal of the old excavating machine.
  2. Allowance for doubtful debts consisted of:
    • Bad debts written off: ₦2,500,000
    • General allowance for doubtful debts: ₦10,500,000
    • Specific allowance for doubtful debts: ₦8,000,000
    • Loan to customer written off: ₦5,000,000
  3. Donation included ₦5,000,000 given to victims of environmental degradation, as part of the company’s social responsibility to the host community.
  4. Legal fees included ₦750,000 paid as a penalty for late filing of tax returns.
  5. The tax written down values of qualifying capital expenditure at the end of 2021 tax year were:
    • Motor vehicles (2 years remaining): ₦25,000,000
    • Furniture and fittings (utilised for 2 years): ₦22,500,000
    • Mining expenditure (6 years remaining): ₦40,000,000

Required:

As the Manager (Tax Matters) assigned to handle this matter, you are to forward the report to your Senior Partner (Tax Matters) showing:

a. Computation of tax liabilities of the company for the relevant assessment year (14 Marks).
b. Comments on tax incentives available to a company in the mining of solid minerals in Nigeria (6 Marks).

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  • 30 Marks

ATAX – May 2023 – L3 – Q1 – Taxation of Specialized Businesses

Analyze the tax implications for Hyland Nigeria Ltd, including adjusted profit, tax payable, dividend tax implications, and tax benefits for reconstituted companies.

Hyland Nigeria Limited commenced business as a manufacturer of stationery on January 1, 2021. The company, in December 2020, acquired all the assets and liabilities of a foreign company operating in Nigeria, Lowland Incorporated, and reconstituted it for turnaround and profitability.

The directors of the newly reconstituted company have considered the draft financial statements and annual tax returns for the year ended December 31, 2021. During a board meeting, there was disagreement over the tax treatment of dividends received (N3,600,000) from equity holdings in another Nigerian public limited liability company. The dividends are also part of the proposed profits to be distributed to shareholders.

Additionally, one director suggested that as a reconstituted company, Hyland Nigeria Limited may qualify for tax reliefs or incentives that could positively affect profitability. Following the board’s decision, the Managing Director contacted your firm to provide professional advice on these matters.

The following financial information is extracted from the company’s records:

The following additional relevant information was provided:
(i) Subscription and donations consisted of:

(ii) Allowance for doubtful debts included:

(iii) Repairs and maintenance was made up of:

(iv) Legal and professional fees included:

(v) Other operating expenses were:

(vi) Tax written down values of qualifying capital expenditure (QCE) as at December 31, 2020:

(vii) Additional assets acquired during the year ended December 31, 2021:

(viii) Unrelieved losses as at December 31, 2020 was N55,900,000.
(ix) Unutilised capital allowances as at December 31, 2020 was N16,155.000.

Required:

  1. Calculate the Adjusted Profit of the company for the year ended December 31, 2021.
  2. Compute the Tax Payable for the relevant assessment year.
  3. Provide professional advice on the tax implications of the dividends received for the company and its shareholders.
  4. Comment on tax benefits/incentives applicable to a reconstituted company in Nigeria as per the Companies Income Tax Act 2004 (as amended).

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  • 8 Marks

ATAX – Nov 2016 – L3 – Q2a&b – Taxation of Specialized Businesses

Outlines the activities of NPDC and the importance of Oil Mining and Prospecting Leases in Nigeria.

Nigerian National Petroleum Corporation (NNPC) is a major regulatory body in Nigeria’s Oil and Gas sector, executing various functions through its subsidiaries.

Requirements:

a) State any FIVE activities of the Nigerian Petroleum Development Company (NPDC), a subsidiary of NNPC. (5 Marks)

b) State the importance of an Oil Mining Lease and an Oil Prospecting Lease. (2 Marks)

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  • 20 Marks

AT – May 2024 – L3 – SB – Q2 – Taxation of Specialized Businesses

Calculation of hydrocarbon tax payable by New Rain Petroleum and analysis of tax implications for deep offshore investment.

New Rain Petroleum Company Limited has been operating in the onshore and shallow water areas of the Niger Delta region for over fifteen years. The company was granted a petroleum mining lease license in January 2021. In its bid to improve profitability, the company’s management intends to apply for a license to operate in the deep-sea area starting from 2025. The decision of the management is expected to be presented to the company members at the 2023 annual general meeting, scheduled in the second half of 2024.

The following financial data were extracted from the book of accounts of New Rain Petroleum Company for the year ended December 31, 2023:

Income N’ million
Fiscal value of crude oil sold 191,100
Value of condensate from associated gas 84,474
Value of natural gas liquid from associated gas 55,328
Other incidental income 151
Realized exchange gain 38
Gross total income 331,091
Expenses/Deductions N’ million
Royalty incurred and paid 86,200
First exploration wells cost 6,800
First two appraisal wells costs 18,700
Joint cost – terminalling 12,000
Gas reinjection wells cost 3,420
Salaries and wages 9,300
Power cost 1,650
NDDC charge 125
Concessional rentals 60,430
Depreciation of assets 13,860
Allowance for doubtful debts 2,400
Host community trust fund contribution 4,800
Stamp duty 16
Staff welfare 350
Travelling 180
Donations and subscription 6
Decommissioning and abandonment 1,300
Environmental remediation fund contribution 1,250
General expenses 500
Finance costs 1,750
Total Expenses 225,037
Net Profit 106,054

Additional Information:

  1. Data on Crude Oil, Condensate, and Natural Gas Sales:
    Category Quantity (million barrels) Actual Price (USD) Fiscal Price (USD)
    Crude oil 5.25 70 72
    Condensate from associated gas 3.61 45 44
    Natural gas liquid from associated gas 2.80 38 40
  2. Omitted Record:
    • A balancing charge of N1,500,000 was made from the disposal of an old oil equipment platform, which was omitted from the records.
  3. Allowance for Doubtful Debts:
    Type of Provision N’ million
    Specific provisions 900
    General provisions 1,500
    Total 2,400
  4. Donations and Subscription:
    Recipient N’ million
    Recognized orphanage homes 3.0
    Host community’s cultural group 2.0
    Subscription to oil and gas association 1.0
    Total 6.0
  5. General Expenses:
    Expense N’ million
    Penalty for gas flare 250
    Printing of stationery items 140
    State government levy 110
    Total 500
  6. Agreed Capital Allowances:
    Category N’ million
    Brought forward 167
    For the year 2,105
    Total 2,272
  7. Production Allowance:
    Type of Operation N’ million
    Onshore operations 900
    Shallow water operation 1,700
    Total 2,600
  8. Exchange Rate: The exchange rate averaged N520 to 1 USD during the year.
  9. Assumption: Tax liabilities are to be paid in domestic (Naira) currency.

Required:
As the company’s Tax Manager, you are to advise the management, in accordance with the provisions of the Petroleum Industry Act 2021, on:

a. Hydrocarbon tax payable for the relevant assessment year (18 Marks)
b. Tax implications if the company decides to invest in deep offshore areas (2 Marks)

(Total 20 Marks)+

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  • 5 Marks

AT – May 2018 – L3 – SB – Q2a – Taxation of Specialized Businesses

Differentiate between “disposal” and “disposed of,” and discuss intangible drilling costs and oil mining leases.

“Disposal” or “disposed of” are terminologies used frequently in relation to chargeable oil owned by an oil-producing company under the provisions of the Petroleum Profits Tax Act Cap P.13 LFN 2004.

Required:

(i) Differentiate between “disposal” and “disposed of”. (2 Marks)

(ii) Discuss the following:

  • Intangible drilling costs. (2 Marks)
  • Oil mining lease. (1 Mark)

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  • 20 Marks

ATAX – Nov 2018 – L3 – Q2 – Taxation of Specialized Businesses

Calculation of petroleum profits tax for Olu Oil Limited considering local and export crude oil sales, gas contracts, and various expenses.

Olu Oil Limited has been in the oil prospecting business in one of the major oil fields in the Niger Delta region of Nigeria since 2009. The company has provided the following operational results for the year ended December 31, 2015:

(i) Type of crude oil and sales statistics:

  • Bonny Light: 35,000 barrels exported at 39º API
  • Bonny Medium: 25,200 barrels exported at 35º API
  • Forcados: 16,300 barrels exported at 32º API

Price per barrel:

  • Bonny Light: $52.03 at 35º API
  • Bonny Medium: $49.04 at 35º API
  • Forcados: $48.29 at 35º API

Adjustment for API variance: Actual realized price was arrived at after adjusting for the variance in API. Thus, for every API, $0.03 was the variance in price at 35º API.

(ii) Local sales of crude oil: 32,750 barrels of crude oil was produced and sold in the domestic market at the rate of N345 per barrel.

(iii) Natural gas sales from two contracts:

Contract Value (N) Load Factor
Obi Ltd 42,285,000 62
Oba Ltd 27,775,000 74

(iv) Miscellaneous income: N125,800,300, including N105,500,000 from the sale of refined petroleum products. Attributable expenses of N88,240,000 were included in management and administrative expenses.

(vi) Miscellaneous income included N105,500,000, from the sale of refined petroleum products. An equivalent attributable expenses of N88,240,000 was included in management and administrative expenses.
(vii) Interest paid included N5,350,000, which was paid to Prince Limited, an associated company.
(viii) Donations included:

(ix) The pension scheme was approved by the Joint Tax Board.

(x) Exchange loss on remittance amounting to N3,200,000 was included in management and administrative expenses.
(xi) The schedule of qualifying capital expenditure includes:

(xii) Capital allowances brought forward was N12,700,000.
(xiii) The rate of exchange was N360 to a US Dollar.
(xiv) NNPC provides the relevant schedule as follows:

Required:
Evaluate the transactions and advise the management on:
(a.) Assessable profit (14 Marks)
(b.) Chargeable profit (2 Marks)
(c.) Chargeable tax (2 Marks)
(d.) Total tax liability payable (2 Marks)

 

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  • 5 Marks

ATAX – May 2017 – L3 – Q4a – Tax Incentives and Reliefs

List five incentives provided by the Federal Government of Nigeria to attract investors to the solid minerals sector.

Oil and Gas are major sources of revenue for the Federal Government of Nigeria (FGN). This has become a burden to the government due to its inability to control the volume of production and price. To ameliorate this burden, the FGN is seeking alternative sources of revenue, and solid minerals have been identified.

Required:
State FIVE incentives put in place by the Federal Government of Nigeria (FGN) to attract potential investors to the solid minerals sector. (5 Marks)

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  • 5 Marks

ATAX – May 2017 – L3 – Q2b – Tax Incentives and Reliefs

List five tax incentives for companies utilizing associated gas in downstream operations.

State FIVE incentives available to a company engaged in the utilization of associated gas. (5 Marks)

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  • 15 Marks

ATAX – May 2017 – L3 – Q2a – Taxation of Specialized Businesses

Explain the concepts of load factor, G-factor, and compute the value of chargeable natural gas sold.

Oron Itu Petroleum Company Limited has been in the Oil and Gas business for several years. The company has just secured its first two contracts to supply consignments of Natural Gas to two companies in Ghana and Gambia.

The consignment to Ghana was valued at N589,000,000 while that to Gambia was valued at N375,500,000.

The relevant arm of the Nigerian National Petroleum Corporation (NNPC) issued Certificates of Export as follows:

Contract No Amount (N) Load Factor
I 589,000,000 580
II 375,500,000 620

The Managing Director, who has just resumed duty, could not understand the meaning of Load Factor. He has approached you as the Tax Consultant to advise him on the points raised.

The table below is provided for reference:

Load Factor G-Factor (% per annum)
500 16.9
600 15.5
700 14.3
1000 13.6

You are required to:

(a) Explain briefly the following:
i. The reason behind having a load factor on the Consignee’s Certificate. (3 Marks)
ii. G-Factor. (1 Mark)
iii. Value of Chargeable Natural Gas. (2 Marks)
iv. Compute the Value of Gas sold. (9 Marks)

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  • 10 Marks

ATAX – May 2019 – L3 – Q7a – Taxation of Specialized Businesses

Provide a report on fiscal incentives in Nigeria’s oil and gas sector, including gas production, exploitation of associated gas, and free trade zone investments.

The Federal Government of Nigeria, in the third quarter of 2018, announced the discovery of a huge hydro-carbon deposit in the Chad Basin area of Borno State. This information has attracted interest from local and foreign investors in the Nigerian oil and gas sector. One such foreign investor is a Japanese billionaire, Mr. Sun Nagasaki, who has investments in oil and gas operations in the Middle East and Latin America.

Mr. Nagasaki is, however, not familiar with the regulations guiding operations and the incentives available to investors in the oil and gas sub-sector in Nigeria. You have been appointed as a tax consultant by Mr. Nagasaki’s representative in Nigeria.

Required:
a. Draft a report addressed to Mr. Nagasaki explaining the following issues of interest:

i. Fiscal incentives available in the gas production phase (2 Marks)
ii. Six incentives for the encouragement of exploitation and utilization of associated gas for commercial purposes (downstream operations) (3 Marks)
iii. Six incentives and fiscal measures that favour and encourage large investment in oil and gas free trade zones (4 Marks)

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  • 20 Marks

ATAX – May 2022 – L3 – Q4 – Taxation of Specialized Businesses

Compute tax liabilities and discuss incentives for Dutse Mines in mining solid minerals

———————————————————————
Question:

As investors and policymakers adapt to the global energy transition in a bid to offer an effective hedge against swings in oil prices, the Federal Government has recognised that it is beneficial for the country to diversify its economy. The attention of the country is now towards the development of the solid minerals sector. The Nigeria Minerals and Mining Act 2007 (as amended) was enacted to regulate the industry. Incentives for operators in the sector are as provided for in Section 5 of the Act.

One of the earliest investors in the mining sector, Dutse Mines (Nigeria) Limited, was granted a mining title by the Mining Cadastre Office (MCO) for exploitation of limestone in Nkalagu in the south-eastern zone of Nigeria in 2008. In spite of so many challenges the company is facing, it has managed to remain afloat in business.

The company has, of recent, been having tax disputes with the relevant tax authority, and your firm of chartered accountants has been engaged to help resolve them. In the 2022 tax returns filed by the company, the major area of dispute between the company and the tax authority was disparity in the treatment of certified exploration and processing expenditure of ₦60,000,000 incurred during the course of the year.

Your firm is provided with the following extracts (and supporting documents) from the books of the company for the year ended December 31, 2021:

Additional Information:

  1. Sundry income included ₦8,500,000 realised as profit from disposal of the old excavating machine.
  2. Allowance for doubtful debts consisted of:
    • Bad debts written off: ₦2,500,000
    • General allowance for doubtful debts: ₦10,500,000
    • Specific allowance for doubtful debts: ₦8,000,000
    • Loan to customer written off: ₦5,000,000
  3. Donation included ₦5,000,000 given to victims of environmental degradation, as part of the company’s social responsibility to the host community.
  4. Legal fees included ₦750,000 paid as a penalty for late filing of tax returns.
  5. The tax written down values of qualifying capital expenditure at the end of 2021 tax year were:
    • Motor vehicles (2 years remaining): ₦25,000,000
    • Furniture and fittings (utilised for 2 years): ₦22,500,000
    • Mining expenditure (6 years remaining): ₦40,000,000

Required:

As the Manager (Tax Matters) assigned to handle this matter, you are to forward the report to your Senior Partner (Tax Matters) showing:

a. Computation of tax liabilities of the company for the relevant assessment year (14 Marks).
b. Comments on tax incentives available to a company in the mining of solid minerals in Nigeria (6 Marks).

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  • 30 Marks

ATAX – May 2023 – L3 – Q1 – Taxation of Specialized Businesses

Analyze the tax implications for Hyland Nigeria Ltd, including adjusted profit, tax payable, dividend tax implications, and tax benefits for reconstituted companies.

Hyland Nigeria Limited commenced business as a manufacturer of stationery on January 1, 2021. The company, in December 2020, acquired all the assets and liabilities of a foreign company operating in Nigeria, Lowland Incorporated, and reconstituted it for turnaround and profitability.

The directors of the newly reconstituted company have considered the draft financial statements and annual tax returns for the year ended December 31, 2021. During a board meeting, there was disagreement over the tax treatment of dividends received (N3,600,000) from equity holdings in another Nigerian public limited liability company. The dividends are also part of the proposed profits to be distributed to shareholders.

Additionally, one director suggested that as a reconstituted company, Hyland Nigeria Limited may qualify for tax reliefs or incentives that could positively affect profitability. Following the board’s decision, the Managing Director contacted your firm to provide professional advice on these matters.

The following financial information is extracted from the company’s records:

The following additional relevant information was provided:
(i) Subscription and donations consisted of:

(ii) Allowance for doubtful debts included:

(iii) Repairs and maintenance was made up of:

(iv) Legal and professional fees included:

(v) Other operating expenses were:

(vi) Tax written down values of qualifying capital expenditure (QCE) as at December 31, 2020:

(vii) Additional assets acquired during the year ended December 31, 2021:

(viii) Unrelieved losses as at December 31, 2020 was N55,900,000.
(ix) Unutilised capital allowances as at December 31, 2020 was N16,155.000.

Required:

  1. Calculate the Adjusted Profit of the company for the year ended December 31, 2021.
  2. Compute the Tax Payable for the relevant assessment year.
  3. Provide professional advice on the tax implications of the dividends received for the company and its shareholders.
  4. Comment on tax benefits/incentives applicable to a reconstituted company in Nigeria as per the Companies Income Tax Act 2004 (as amended).

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  • 8 Marks

ATAX – Nov 2016 – L3 – Q2a&b – Taxation of Specialized Businesses

Outlines the activities of NPDC and the importance of Oil Mining and Prospecting Leases in Nigeria.

Nigerian National Petroleum Corporation (NNPC) is a major regulatory body in Nigeria’s Oil and Gas sector, executing various functions through its subsidiaries.

Requirements:

a) State any FIVE activities of the Nigerian Petroleum Development Company (NPDC), a subsidiary of NNPC. (5 Marks)

b) State the importance of an Oil Mining Lease and an Oil Prospecting Lease. (2 Marks)

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  • 20 Marks

AT – May 2024 – L3 – SB – Q2 – Taxation of Specialized Businesses

Calculation of hydrocarbon tax payable by New Rain Petroleum and analysis of tax implications for deep offshore investment.

New Rain Petroleum Company Limited has been operating in the onshore and shallow water areas of the Niger Delta region for over fifteen years. The company was granted a petroleum mining lease license in January 2021. In its bid to improve profitability, the company’s management intends to apply for a license to operate in the deep-sea area starting from 2025. The decision of the management is expected to be presented to the company members at the 2023 annual general meeting, scheduled in the second half of 2024.

The following financial data were extracted from the book of accounts of New Rain Petroleum Company for the year ended December 31, 2023:

Income N’ million
Fiscal value of crude oil sold 191,100
Value of condensate from associated gas 84,474
Value of natural gas liquid from associated gas 55,328
Other incidental income 151
Realized exchange gain 38
Gross total income 331,091
Expenses/Deductions N’ million
Royalty incurred and paid 86,200
First exploration wells cost 6,800
First two appraisal wells costs 18,700
Joint cost – terminalling 12,000
Gas reinjection wells cost 3,420
Salaries and wages 9,300
Power cost 1,650
NDDC charge 125
Concessional rentals 60,430
Depreciation of assets 13,860
Allowance for doubtful debts 2,400
Host community trust fund contribution 4,800
Stamp duty 16
Staff welfare 350
Travelling 180
Donations and subscription 6
Decommissioning and abandonment 1,300
Environmental remediation fund contribution 1,250
General expenses 500
Finance costs 1,750
Total Expenses 225,037
Net Profit 106,054

Additional Information:

  1. Data on Crude Oil, Condensate, and Natural Gas Sales:
    Category Quantity (million barrels) Actual Price (USD) Fiscal Price (USD)
    Crude oil 5.25 70 72
    Condensate from associated gas 3.61 45 44
    Natural gas liquid from associated gas 2.80 38 40
  2. Omitted Record:
    • A balancing charge of N1,500,000 was made from the disposal of an old oil equipment platform, which was omitted from the records.
  3. Allowance for Doubtful Debts:
    Type of Provision N’ million
    Specific provisions 900
    General provisions 1,500
    Total 2,400
  4. Donations and Subscription:
    Recipient N’ million
    Recognized orphanage homes 3.0
    Host community’s cultural group 2.0
    Subscription to oil and gas association 1.0
    Total 6.0
  5. General Expenses:
    Expense N’ million
    Penalty for gas flare 250
    Printing of stationery items 140
    State government levy 110
    Total 500
  6. Agreed Capital Allowances:
    Category N’ million
    Brought forward 167
    For the year 2,105
    Total 2,272
  7. Production Allowance:
    Type of Operation N’ million
    Onshore operations 900
    Shallow water operation 1,700
    Total 2,600
  8. Exchange Rate: The exchange rate averaged N520 to 1 USD during the year.
  9. Assumption: Tax liabilities are to be paid in domestic (Naira) currency.

Required:
As the company’s Tax Manager, you are to advise the management, in accordance with the provisions of the Petroleum Industry Act 2021, on:

a. Hydrocarbon tax payable for the relevant assessment year (18 Marks)
b. Tax implications if the company decides to invest in deep offshore areas (2 Marks)

(Total 20 Marks)+

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  • 5 Marks

AT – May 2018 – L3 – SB – Q2a – Taxation of Specialized Businesses

Differentiate between “disposal” and “disposed of,” and discuss intangible drilling costs and oil mining leases.

“Disposal” or “disposed of” are terminologies used frequently in relation to chargeable oil owned by an oil-producing company under the provisions of the Petroleum Profits Tax Act Cap P.13 LFN 2004.

Required:

(i) Differentiate between “disposal” and “disposed of”. (2 Marks)

(ii) Discuss the following:

  • Intangible drilling costs. (2 Marks)
  • Oil mining lease. (1 Mark)

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  • 20 Marks

ATAX – Nov 2018 – L3 – Q2 – Taxation of Specialized Businesses

Calculation of petroleum profits tax for Olu Oil Limited considering local and export crude oil sales, gas contracts, and various expenses.

Olu Oil Limited has been in the oil prospecting business in one of the major oil fields in the Niger Delta region of Nigeria since 2009. The company has provided the following operational results for the year ended December 31, 2015:

(i) Type of crude oil and sales statistics:

  • Bonny Light: 35,000 barrels exported at 39º API
  • Bonny Medium: 25,200 barrels exported at 35º API
  • Forcados: 16,300 barrels exported at 32º API

Price per barrel:

  • Bonny Light: $52.03 at 35º API
  • Bonny Medium: $49.04 at 35º API
  • Forcados: $48.29 at 35º API

Adjustment for API variance: Actual realized price was arrived at after adjusting for the variance in API. Thus, for every API, $0.03 was the variance in price at 35º API.

(ii) Local sales of crude oil: 32,750 barrels of crude oil was produced and sold in the domestic market at the rate of N345 per barrel.

(iii) Natural gas sales from two contracts:

Contract Value (N) Load Factor
Obi Ltd 42,285,000 62
Oba Ltd 27,775,000 74

(iv) Miscellaneous income: N125,800,300, including N105,500,000 from the sale of refined petroleum products. Attributable expenses of N88,240,000 were included in management and administrative expenses.

(vi) Miscellaneous income included N105,500,000, from the sale of refined petroleum products. An equivalent attributable expenses of N88,240,000 was included in management and administrative expenses.
(vii) Interest paid included N5,350,000, which was paid to Prince Limited, an associated company.
(viii) Donations included:

(ix) The pension scheme was approved by the Joint Tax Board.

(x) Exchange loss on remittance amounting to N3,200,000 was included in management and administrative expenses.
(xi) The schedule of qualifying capital expenditure includes:

(xii) Capital allowances brought forward was N12,700,000.
(xiii) The rate of exchange was N360 to a US Dollar.
(xiv) NNPC provides the relevant schedule as follows:

Required:
Evaluate the transactions and advise the management on:
(a.) Assessable profit (14 Marks)
(b.) Chargeable profit (2 Marks)
(c.) Chargeable tax (2 Marks)
(d.) Total tax liability payable (2 Marks)

 

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