Proposed Tax Rebates For Oil Firms May Improve FX

Generally, tax rebates are geared towards encouraging oil firms to invest in local research and development. 

However, emphasizing tax rebates for international oil companies can improve foreign exchange by increasing the amount of money that is brought into the country.

This can be done by reducing the amount of taxes that oil companies have to pay, which can free up more money for investment in the country.

This can lead to increased foreign direct investment, which can help to strengthen the country's economy and improve its foreign exchange reserves. 

Additionally, tax rebates can also encourage oil companies to invest more in the country leading to increased production and exports. 

How the NCDMB and FIRS Advocate for Tax Rebates

The Nigerian Content Development and Monitoring Board (NCDMB) and the Federal Inland Revenue Service (FIRS) have urged oil and gas companies to increase their investments in research and development (R&D) in order to benefit from the incentives provided in existing fiscal laws. 

The agencies said the provision is aimed at boosting the profitability of oil firms and reducing their tax burden.

The Executive Secretary, NCDMB, Simbi Wabote, and the Executive Chairman, FIRS, Muhammad Nami stated this in Yenagoa, Bayelsa State, at the one-day Nigerian Oil and Gas Industry Suppliers’ Tax Awareness Workshop jointly organised by the two institutions. 

Delivering the keynote address at the event, Wabote said that the Finance Act 2021 and other extant tax codes relating to R&D provide attractive tax incentives for oil and gas firms that invest in R&D.

He hinted that many oil and gas companies were oblivious to the opportunities that exist within Nigerian tax laws for the oil industry to harness from investing in R&D. 

He reiterated that such workshops provide the necessary education and enlightenment that enable businesses to position themselves appropriately to benefit from making R&D an integral part of their business model.

He observed that the low level of R&D funding by private companies is partly linked to inadequate information.

However, he regretted that “the consequence is not only significant capital flight in the acquisition of technology required for oil and gas projects and operations, but also players in the sector are tied to the apron and direct control of the foreign supply chain who control the technological advances arising from their R&D activities.”

Wabote cited examples of leading Fortune 500 companies that commit between five- 10 per cent of their yearly budgets to R&D, which enables them to produce innovative products and make significant tax returns to the Federal Government and create huge employment opportunities. 

Speaking further, the NCDMB boss expressed hope that the workshop will change the gross underfunding of research in Nigeria, which is currently estimated at less than 0.2 per cent of the national budget.

He insisted that operators can no longer neglect R&D, insisting that it is key to local content development, enhancement of future tax revenue to the Government, development of home-grown solutions, and retention of industry spending within Nigerian financial institutions.

“That access to the Nigerian Content Intervention Fund by the local supply chain has been one of the major contributors to the growth in local content level from less than 5% in 2010 to 54% in 2022.”

In his own remarks, the Executive Chairman, FIRS, Muhammad Nami, said: “Research and Development (R&D) has been identified as a veritable means for companies that want to remain competitive and profitable in today’s rapidly changing business environment.”Nami, who was represented by his Senior Special Assistant, Gabriel Ogunjemilusi, provided details on the Federal Government’s tax regime, incentives, and related facts.

“Allowable deduction of up to 10% of the amount of reserve made out of the profits of a period by a company for research and development: claim of capital allowance on capital expenditure on plant and machinery used for R&D activities; pioneer status tax holiday for R&D Companies; companies and other organizations that invest in R&D facilities for commercialization can claim a tax credit of up to 20% of the cost of their qualifying expenditures.”