FG introduces tax relief for projects in the field of oil and gas deposits in deep sea areas

The federal government has introduced tax breaks in the country for projects related to oil and gas extraction in deep sea areas and VAT exemption for LPG, CNG, diesel oil and others.

The Ministry of Finance revealed this in its official comment on Case X, in which it stated that the fiscal incentives were intended to stimulate investment in the oil and gas sector.

Ministry orders are titled; Value Added Tax (VAT) Amendment Order 2024 and Notification on Tax Incentives for Deep Sea Oil and Gas Exploration under the Oil and Gas Companies (Tax Incentives, Exemptions, Write-offs, etc.) Order 2024.

The VAT Amendment Regulation 2024 exempts key energy products such as diesel, LPG, CNG and clean energy infrastructure such as electric vehicles and clean kitchen equipment from VAT.

According to the Ministry, these exemptions are aimed at reducing the cost of living, improving energy security and supporting Nigeria’s transition to cleaner energy.

The Notice on Tax Incentives for Deep Sea Oil and Gas Exploration introduces new tax incentives to attract global investment in deep sea projects in Nigeria.

The ministry’s statement noted that the tax breaks are part of President Bola Ahmed Tinubu’s broader policy reforms and measures aimed at boosting the energy sector and strengthening Nigeria’s global competitiveness in the oil and gas sector.

What the federal government says “The Honorable Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, has unveiled two major fiscal incentives to revitalize Nigeria’s oil and gas sector:”

Regulation amending value added tax (VAT) 2024
“Notice on tax incentives for deep sea oil and gas production under the Oil and Gas Companies (Tax Incentives, Exemptions, Write-offs, etc.) Ordinance 2024.”

“The 2024 VAT Amendment Regulation introduces exemptions for a number of key energy products and infrastructure, including diesel, feed gas, liquefied petroleum gas (LPG), compressed natural gas (CNG), electric vehicles, liquefied natural gas (LNG) infrastructure ) and Clean kitchen equipment.”

“These measures are aimed at reducing the cost of living, increasing energy security and accelerating Nigeria’s transition to cleaner energy sources.”

What you should know

Recently, the cost of cooking gas and other energy products has increased significantly due to currency depreciation and other inflationary pressures. A recent audit by Nairametrics showed that the cost of filling a 5kg cylinder has increased to almost N7,000.

Last October, the federal government ruled out charging VAT on diesel fuel due to price increases and the impact on inflation. However, the exemption lasted only six months, and the order expired in April 2024.

Decline in investment in the oil and gas sector

Moreover, there has been no significant investment in the Nigerian oil and gas sector over the past decade due to inconsistent government policies and regulations. However, in the industry there has been significant divestment of onshore deposits by international oil companies (IOCs) such as Shell, ExxonMobil, ENI and others.

In recent years, offshore deposits have proven more attractive to these IOCs due to relatively reduced risk and higher reserves. By 2023, Nigeria is estimated to have gas reserves of 200 trillion cubic feet.