FG Introduces Concessions to Revitalize Oil, Gas, Manufacturing
By Patience Ikpeme
The Federal Government has rolled out major fiscal incentives aimed at breathing new life into the country’s oil and gas industry.
These measures are designed to rejuvenate both the upstream and downstream sectors, ensuring sustainable growth while enhancing Nigeria’s global competitiveness.
The announcement was made today by the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, who unveiled two landmark fiscal policies—the Value Added Tax (VAT) Modification Order 2024 and the Notice of Tax Incentives for Deep Offshore Oil & Gas Production. These measures are in line with the Oil & Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order 2024, setting the stage for a dynamic shift in the energy sector.
The VAT Modification Order 2024 introduces significant exemptions that directly impact the cost of key energy products and infrastructure. This includes VAT exemptions on Diesel, Feed Gas, Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Electric Vehicles, Liquefied Natural Gas (LNG) infrastructure, and Clean Cooking Equipment.
By removing VAT on these products, the government aims to lower the cost of living for Nigerians, ensure energy security, and fast-track the country’s transition to cleaner and more sustainable energy sources. This move is expected to alleviate the financial strain on businesses and consumers while advancing environmental goals through the promotion of greener technologies.
According to Mr. Edun, “These exemptions will provide relief across the energy value chain, making energy more affordable while boosting investments in renewable technologies.”
In addition to the VAT reliefs, the government introduced a Notice of Tax Incentives for Deep Offshore Oil & Gas Production. This policy provides new tax breaks specifically designed to stimulate investments in Nigeria’s deep offshore oil projects.
With global energy companies increasingly looking for competitive destinations for investment, this initiative aims to position Nigeria’s deep offshore basin as a top choice for international oil and gas exploration. The deepwater sector has been a major source of revenue for Nigeria, and these new incentives are expected to bring in much-needed foreign investment to bolster economic growth.
“These tax reliefs are targeted at ensuring that Nigeria remains a competitive player in the global oil and gas market,” Mr. Edun remarked. “We are confident that with these initiatives, Nigeria will regain its position as a leader in oil and gas production.”
These fiscal reforms are part of a larger strategy outlined by President Bola Ahmed Tinubu, under Policy Directives 40-42, which focus on investment-driven economic growth. The administration has prioritized creating a business-friendly environment to attract foreign direct investment and stimulate local enterprise.
The reforms reflect the government’s commitment to sustainable development within the energy sector, an industry that has historically played a pivotal role in Nigeria’s economy. The Tinubu administration’s proactive stance is expected to not only stabilize the energy sector but also generate employment and foster long-term economic prosperity.
In a related development, the Federal Government has also introduced new tax regulations aimed at reducing the tax burden on the manufacturing sector and small businesses. The regulations, which fall under the “Deduction of Tax at Source (Withholding) Regulations, 2024,” were signed into law by Mr. Wale Edun on Wednesday.
These new tax rules will apply to payments under several key acts, including the Capital Gains Tax Act, Companies Income Tax Act, Petroleum Profits Tax Act, and the Personal Income Tax Act. The regulations are designed to simplify tax deductions, promote global best practices, reduce tax evasion, and ensure that businesses can easily comply with tax obligations.
“The objective of these regulations is to streamline the deduction of tax at source, simplify the compliance process, and reduce the complexity that businesses often face,” Mr. Edun stated.
The regulations place a special focus on providing relief for small businesses. Companies with a turnover of N2 million or less in a calendar month, and that possess a valid Tax Identification Number (TIN), will be exempt from tax deductions at source. This exemption is aimed at supporting small businesses and manufacturers, particularly those in sectors with thin profit margins.
Additionally, businesses that fail to provide a TIN will be subject to a doubled deduction rate for eligible transactions, further incentivizing compliance with tax regulations.
The Deduction of Tax at Source (Withholding) Regulations, 2024, are set to take effect on January 1, 2025. However, businesses that wish to take advantage of the provisions early can apply from July 1, 2024. The Federal Inland Revenue Service (FIRS) will issue additional guidelines to ensure smooth implementation.
The regulations emphasize that taxes deducted at source are not considered an extra cost or separate tax but are treated as advance payments toward the supplier’s final tax liability. This will ease the financial burden on businesses while promoting compliance.
Failure to remit taxes or deduct them at source will lead to severe penalties, in accordance with existing laws under the Federal Inland Revenue Service (Establishment) Act and the Personal Income Tax Act. These penalties are designed to curb tax evasion and encourage responsible business practices.
