The contributions of the oil and gas sector is integral to the economic growth and development of a country's economy. In Nigeria, the oil and gas sector has become the mainstay of the economy, as the sector accounted for about 86% of the country's foreign exchange earnings and contributed 8.60% to the aggregate real gross domestic product in 2018. Furthermore, the Nigerian oil and gas industry is a significant employer of labour in the country and the sector contributes tax revenues to the government coffers on an annual basis.

Given the contributions of the oil and gas sector and the considerable operational and financial risks associated with oil related activities, it becomes imperative for government to provide a friendly business environment to enable private sector investments to thrive in the sector. One important means by which the government may incentivize private companies operating in the oil and gas industry is by ensuring certainty in taxes to be paid and discouraging the imposition of multiple taxes by different government agencies and tiers of government. Where taxpayers experience imposition of multiple taxes, it affects investor confidence and may impair future investment decisions in such a jurisdiction.

The foregoing notwithstanding, it appears that the various tax authorities and revenue agencies in Nigeria view oil and gas companies as easy targets for any 'smash and grab raids' to augment shortfalls in revenue targets in a fiscal year. For instance, some State Governments in the country have enacted laws imposing numerous taxes, fees and levies on oil companies and vessels operating within their states. These taxes, fees and levies are imposed on the same company/revenue stream by more than one State or Local Government Council. In a particular instance, the internal revenue authority of a certain State imposed a levy of ₦5 million on companies providing man-power services to exploration and production companies in that State. This was done without considering the amount of revenue or profits generated by such companies from the state.

Furthermore, apart from taxes imposed on profits of oil and gas companies, they are also exposed to a host of other levies imposed by other laws and government bodies in Nigeria. Examples include the deduction of 1% Nigerian Content Development Levy on invoices of companies operating in the upstream sector of the oil and gas industry, cabotage levy, contributions to the Niger Delta Development Commission Fund, oil terminal dues etc.

This article highlights the potential implications of multiple taxes and levies on the operation of companies operating within the Oil and Gas industry.

Is multiple taxation an acceptable practice in Nigeria?

The Nigerian Constitution has allocated the responsibilities of imposing specific taxes, levies and fees between the different tiers of government, to curtail the incidence of multiple taxation. Thus, the extent of the legislative powers of the federal and state governments are highlighted in the exclusive legislative and concurrent legislative lists in the Nigerian constitution. In furtherance of this distinction by the constitution, the National Tax Policy, which prescribes the guidelines and rules to regulate the Nigerian tax system, notes the incidence of internal multiple taxation as a major disincentive to local and foreign investments and encourages the federal, state and local governments to take collaborative steps in eliminating multiple taxation in the country.

Perhaps to eliminate the incidence of multiple taxation in the country, the government further introduced the Taxes and Levies (Approved List for Collection) Act to provide a list of taxes and levies that the various tiers of government can collect from taxpayers in the country. Thus, a tier of government is legally barred from collecting taxes or levies not approved and listed in the Taxes and Levies (Approved List for Collection) Act.

The Nigerian Courts have also examined cases bordering on imposition of multiple taxes and have sought to enforce the relevant provisions of the constitution and Taxes and Levies (Approved List for Collection) Act, in this regard. In the case Nigerian Employers Consultative Association (NECA) and Retail Supermarkets Nigeria Limited V Kano State Internal Revenue Service, the Federal High Court (FHC) nullified the consumption tax imposed by the Kano State Government on goods and services consumed within the state, on the grounds that the provisions of the Kano State Revenue Administration (Amendment) Law were inconsistent with second schedule of the Nigerian constitution. The FHC held that the consumption tax in Kano State amounted to double taxation, as the good and services to be taxed by the State's Revenue Administration (Amendment) Law were already liable to the Value Added Tax (VAT). Similarly, in the case IHS Nigeria Limited (IHS) vs Attorney General of the Federation & Others, the FHC held that a telecommunications mast/base station does not constitute 'Business Premises' for tax purposes. The FHC hinged its decision on the fact that business premises levy imposed on IHS by the Abia State Government had already been imposed on the chargeable office of the Company, and levying same on the base stations will amount to imposing multiple taxes on the Company. In another case between Abuja Electricity Distribution Company (AEDC) v. Kuje Area Council (KAC), the High Court of the Federal Capital Territory held that Local Government Councils in Nigeria have no power to create or impose any tax or levy outside the ambit of the taxes and levies (Approved List for Collection) Act and/or the Taxes and levies (Approved List for Collection) Act (Amendment) Order, 2015.

These rulings by the Courts suggests that in spite of the legislative powers conferred on the three tiers of government to make laws for taxation purposes, these powers cannot be exercised unreasonably to promote imposition of multiple taxes under the pretext of shoring up the revenue base for the government.

Implications of multiple taxation on the Nigerian oil and gas sector

Investment in the oil and gas sector is fraught with multiple operational and financial risks. These risks when combined with the capital-intensive nature of oil and gas operations, makes an investor extra cautious when deciding whether or not to invest in a country's oil and gas sector.

Furthermore, the investor is also aware of the investment options available in other jurisdictions with oil and gas endowment, thus, the impact of multiple taxes on his potential returns on investments can be pivotal in swaying the decision on whether or not to invest in a certain country.

The current practice of subjecting oil and gas companies to all manner of taxes and levies by government agencies of the three tiers of government may make the Nigerian oil and gas sector uncompetitive, deter local and foreign investments and may limit the future economic growth and development of the sector. The survival of the companies operating in the oil and gas sector is also crucial to the growth of the Nigerian economy, as any adverse effect on the finances of these companies and their eventual collapse would trigger a decline in the taxes accruable to the government and further aggravate the unemployment situation in the country.


It is essential that the government does not place undue reliance on the imposition of multiple taxes and levies on companies engaged in oil and gas activities, as the principal way of boosting their internally generated revenues. These multiple taxes would increase their cost of conducting their business in Nigeria and may lead to wave of divestments from the Nigerian oil and gas industry.

The Government should aim at increasing its tax revenues through increased participation of foreign and local investors in the oil and gas industry. This can be achieved through eliminating fiscal uncertainties and generally improving the ease of doing business in Nigeria.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.