- 15 Marks
ATAX – May 2022 – L3 – Q7 – Petroleum Profits Tax (PPT)
Identify allowable expenses under the PIA and explain implications of mergers in upstream petroleum operations.
Question
In the last three years, some major oil producing companies have decided to divest their investments from the Nigerian oil and gas sector. One of the reasons for this might be the new global energy order, which seems to favour the evolution of a “green environment” as against the present use of hydrocarbons with its inherent environmental degradation and pollution.
Similarly, in response to the yearnings of various stakeholders in the oil and gas sector, the Federal Government enacted the Petroleum Industry Act (PIA) 2021. Generally, the Act provides the legal, governance, regulatory, and fiscal framework for the Nigerian petroleum industry, the development of host communities, and for related matters.
Notable commentators and professionals in the sector suggest that the divestment of major oil and gas operators in Nigeria could be beneficial to local investors if funds are sourced and deployed to businesses in the sector. Mergers and acquisitions of indigenously owned oil-producing companies have been noted as one valuable option in this regard.
Required:
a. In respect of the Petroleum Industry Act 2021, identify the expenses allowable in the computation of adjusted profit of a company in upstream petroleum operations. (6 Marks)
b. Identify and explain SIX implications of mergers and acquisitions in respect of a situation where a new company takes over an existing company. (9 Marks)
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