DEDUCTIBILITY OF PAYMENT FOR GAS FLARING IN COMPUTING TAX UNDER PETROLUEM PROFITS TAX ACT IN NIGERIA

Abstract

In computing the profit of a company engaged in petroleum operations, there are certain deduction of outgoings and expenses allowed. The outgoings and expenses to be deductible must have been incurred wholly, exclusively and necessary for the purpose of the operations. The issue of whether or not the payment made by an oil and gas producing company in Nigeria for flaring of gas is qualified for tax deductions under section 10 (1) (L) of the Petroleum Profits Tax Act (PPTA) has for some time been controversial. The intervention by court in interpreting the statutes has always elicited criticisms. This work examined the propriety or otherwise of deducting the charge or fee paid for flaring of gas in computation of Petroleum Profits Tax. The provisions of section 10(I) (L) of PPTA and section 3 (1) & (2) of the Associated Gas Re-injection Act were reviewed to achieve this. The paper utilized doctrinal methodology in analyzing the relevant provisions of related statutes, tax laws, case laws, legal opinions of experts in textbooks and articles to the subject matter. It is the author’s view that the outgoings and expenses incurred while flaring gas is not incurred or carried out wholly, exclusively and necessarily during petroleum operations. Further that the rules of interpretation of taxing statutes should be strictly followed and adherence to it will always enrich Nigerian tax jurisprudence.