Gas production phase:
The applicable tax rate is the same as the company income tax which is currently at 30%.
Capital allowance at the rate of 20% per annum is given in the first four years, 19% in the fifth year and the remaining 1% in the books.
Investment tax credit at the current rate of 5%.
Royalty at the rate of 7% onshore and 5% offshore.
Gas transmission and distribution:
Capital allowance as in production phase above.
Tax rate as in production phase.
Tax holiday under pioneer status.
Applicable tax rate under Petroleum Profit Tax (PPT) is 45%.
Capital allowance is 33% per year on-straight line basis in the first three years
with 1% remaining in the books.
Investment tax credit of 10%.
Royalty 7% onshore and 5% offshore, tax deductible.
Gas exploitation (upstream operation):
Fiscal arrangements are reviewed as follows:
All investments necessary to separate oil from gas from reserves into suitable product is considered part of the oil field development.
Capital investment facilities to deliver associated gas in usable form at utilization or transfer points will be treated for fiscal purposes as part of the capital investment for oil development.
Capital allowances, operating expenses and basis for assessment will be subjected to the provisions of the PPT Act and the revised Memorandum of Understanding (MOU).
Gas utilisation (downstream operation:
Companies engaged in gas utilisation are to be
subjected to the provisions of the Companies Income Tax Act (CITA).
An initial tax free period of three years renewable for an additional two years.
Accelerated capital allowances after the tax-free period in the form of 90% with 10% retention in the books.
15% investment capital allowance, which shall not reduce the value of the asset.
In 1998, the government approved additional incentives to support the gas industry in the following areas:
All gas developmental projects, including those engaged in power generation, liquid plants, fertilizer plants, gas distribution/transmission pipelines are taxed under the provisions of Companies Income Tax (CITA) and not the PPT;
All fiscal incentives under the gas utilization downstream operations since 1997 are to be extended to industrial projects that use gas, i.e. power plants, gas to liquids plants, fertilizer plants, gas distribution/transmission
The initial tax holiday is to be extended from three years to five years;
Gas is transferred at 0% PPT and 0% royalty;
Investment capital allowance is increased from 5% to 15%;
Interest on loan on gas projects is to be tax deductible provided that prior approval was obtained from the Federal Ministry of Finance before taking the loan; and
All dividends distributed during the tax holiday shall not be taxed.