For Nigeria’s petroleum sector to attract investments required to grow its reserves and boost production numbers, the fiscal regime for the industry must be progressive and competitive, energy experts have said.
The experts spoke at a webinar Energy Dialogue hosted by Energy Institute Nigeria in partnership with Facility for Oil Sector Transformation (FOSTER) with the theme: Impact of fiscal policies on investments in the petroleum sector.
The experts held that reform in the fiscal regime is urgently required for Nigeria to grow its reserves and increase its production capacity.
Dr. Carole Nahkle, CEO Crystol Energy, in her presentation warned that in developing a new fiscal, Nigeria must take into consideration events in the international market and what other provinces are offering.
Nahkle noted that Nigeria must also strike a balance between the need to generate more revenue for the government and the need to make the industry attractive to investors.
She stressed that the country should look critically at its royalty regime by removing it from production volume to profit figures.
While observing that Nigeria’s current fiscal regime has structural weaknesses and unnecessarily complex, she held that for a fiscal regime to be attractive, it must be stable, simple, progressive and neutral.
According to her, “Tax system subject to continuous tinkering tends to undermine investors’ confidence. Fiscal stability provides some level of predictability and reliability that assists with reliable expenditure forecasting and budgeting.
“A tax regime that is simple to understand, implement and administer, is levied on a well-defined tax base. It increases transparency and reduces the administrative burden, for both administration and taxpaying businesses”.
On progressivity, she explained that the government take increases (decreases) as profitability increases (decreases).
She pointed out that “a neutral tax should not distort investment decisions; it neither deters exploitation of a full range of field sizes nor alters project rankings nor interfere with production decisions”.
On his part, Energy economics expert, Professor Wunmi Iledare said a good fiscal regime should have a blend of economics, technology and public policy.
Iledare observed that Nigeria has not done well in terms of developing fiscal regime for the petroleum industry, noting that a new fiscal regime must aim to drive the economy.
He stated that while the sector provides the bulk of government revenue and foreign exchange, it contributes less than 10 percent of the GDP.
According to him, “There are three things you need to put into consideration when designing a fiscal system: Economics, technology and public policy.
“These are very critical if you are going to be able to develop you petroleum resources and reserves to make sustainable development. I want emphasize the importance of research and development. There must be an inter-play between the universities, the government and the industry.
“To me, this is one of the important missing links when you look at fiscal system design with respect to sustainable development in petroleum resource endowed nations”.
Professor Iledare noted that the reform of petroleum industry fiscal regime Nigeria is inevitable, but urged the government to pay attention to investors’ objectives by making the new fiscal regime competitive and attractive.
Earlier, the moderator of the seminal, Mr. Joseph Nwakwue observed that the delay to reform the fiscal policy has led to uncertainties in the sector with declining production level.
The seminal also had presentations from the Federal Inland Revenue Service (FIRS) and from the Federal Ministry of Finance.