VAT Increase Will Affect Oil And Gas Investments, Says Afrinvest

The effort of the Federal Government to boost local content in the oil and gas sector may be adversely affected by the increase in value Added Tax as captured in the new Finance Act, 2020, Afrinvest said in a report.

The finance Act which is aimed at curbing the deficiencies of major primary tax legislation by amending obsolete and contentious provisions, was signed by President Muhammadu Buhari, in January.

The Act led to an increase in the country’s VAT rate from five per cent to to 7.5 per cent.

The Federal Government said that the new Finance Act, 2020 would increase its fiscal revenues especially from VAT.

The firm said, “The implementation of the Finance Act is expected to increase the tax burden for the oil industry as incorporeal properties.”

Afrinvest noted that specific areas like the divestment of oil and gas assets  are now subject to the new VAT provisions.

“In our opinion, this may have a negative impact on local content in the aspect of the acquisition of divested oil assets from International Oil Companies, the financial investment firm added.

International oil companies operating in Nigeria have over the years divested some of their investments to rebalance their oil asset portfolios

These divestments have aided the realisation of Nigeria’s target to boost local content policy in the upstream sector.

A larger percentage of the country’s oil blocks were sold by the IOCs to local companies, which helped boost local content in the industry.

According to reports, there are several pending divestment transactions which are being delayed by litigation and regulatory approvals.

Afrinvest said that the VAT portion of the Finance Act, which expands the concept of taxable goods to include incorporeal properties such as interests in oil concessions will discourage divestment activities, as well obstruct government’s local content efforts.