- 20 Marks
ATAX – May 2023 – L3 – Q4 – Petroleum Profits Tax (PPT)
Calculate Jaga Petroleum's hydrocarbon tax and income tax liabilities under the Petroleum Industry Act.
Question
Jaga Petroleum Limited was granted an oil mining lease (OML) in January 2001 for exploration of oil and gas in onshore and shallow water operations for twenty years and a further renewal of twenty years, if application is made.
At the expiration of the initial license on December 31, 2020, the company decided not to apply for an extension of its current license under the Petroleum Profit Tax regime and opted for automatic conversion on January 1, 2021, to the petroleum mining lease (PML) as enshrined in the Petroleum Industry Act 2021.
The following details were extracted from the financial statements of the company for the year ended December 31, 2021:
(i) Revenue:
| Category | Type | Quantity (MB) | Actual Price ($) | Fiscal Price ($) |
|---|---|---|---|---|
| Crude oil sold | Bonny light | 7.5 | 75 | 77 |
| Crude oil sold | Forcados medium | 5.2 | 69 | 70 |
| Condensate from associated gas sold | ABC condensate | 4.0 | 55 | 54 |
| Gas liquid from associated gas sold | XYZ liquid | 3.8 | 48 | 50 |
(ii) Expenses/Expenditure:
| Item | N’million |
|---|---|
| Royalty incurred and paid for | 118,900 |
| Production cost | 112,660 |
| Concession rentals | 25,200 |
| Repairs of plant, machinery, and fixtures | 2,680 |
| First exploration well costs | 2,770 |
| Repairs of production implement utensils | 1,850 |
| Cost of gas reinjection wells | 1,250 |
| NDDC charge | 200 |
| Purchase of information on existence of petroleum deposits | 305 |
| Customs duties | 106 |
| First two appraisal wells costs | 3,900 |
| Decommissioning and abandonment | 1,500 |
| Depreciation | 2,820 |
| Environmental remediation fund | 1,800 |
| State government ground rent fee | 22 |
| Finance costs | 25 |
| Host community costs | 1,400 |
| Miscellaneous expenses | 1,129 |
| Administrative costs | 1,980 |
The following additional information was also made available:
(iii) First two appraisal wells costs consisted of 60% tangible costs and 40% intangible costs.
(iv) Expenditure for the purchase of information on existence of petroleum deposits included:
| Item | N’million |
|---|---|
| Acquisition of geophysical information | 100 |
| Geological data and information | 120 |
| Others | 85 |
| Total | 305 |
(v) Miscellaneous expenses were:
| Item | N’million |
|---|---|
| Gas flare fee | 720 |
| Donations to orphanage homes | 132 |
| Terminalling cost | 169 |
| Stamp duty | 18 |
| Signature bonus paid for petroleum deposits | 90 |
| Total | 1,129 |
(vi) Agreed capital allowances for the year was N4,500 million.
(vii) Production allowances after commencement of the Act:
| Operation Type | N’million |
|---|---|
| Onshore operations | 800 |
| Shallow water operations | 1,100 |
(viii) Assume N440 is equivalent to US $1, and tax liabilities payable will be in local currency (Naira).
Required:
Compute for the relevant assessment year the company’s:
- Hydrocarbon tax liability (16 Marks)
- Companies income tax liabilities (4 Marks)
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