• Tuesday, July 23, 2024
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BusinessDay

Nigeria loses N3trn yearly to oil tax avoidance – Agbakoba

Reform NNPC’s structure to address conflicts, inefficiencies – Agbakoba

Olisa Agbakoba, a senior partner at Olisa Agbakoba Legal has alleged that the country is losing a staggering N3 trillion annually due to tax avoidance practices within the oil and gas sector.

The oil and gas industry is the lifeblood of the Nigerian economy, and tax avoidance within this sector could cripple the nation’s economic growth and development.

“Oil rig companies have formed a cartel for tax avoidance, with the Nigerian Maritime Administration and Safety Agency (NIMASA) confirming they do not collect tax from oil rigs. This represents a massive loss of potential government revenue,” Agbakoba said on Tuesday in a chat with journalists.

He noted that the revenue attributable from oil rigs is estimated at N3 Trillion yearly, approximately 15 percent of Nigeria’s national budget estimated at $34 billion budget for 2024.

“The loss of this revenue significantly impacts the government’s ability to fund development projects and public services,” Agbakoba who is also a Senior Advocate of Nigeria said.

He noted that the practice of tax avoidance by companies creates an uneven playing field and discourages compliant companies.

Agbakoba alleged that corruption in the allocation of oil blocks, award of contracts, and distribution of oil revenues has eroded public trust.

“The opaque nature of some transactions has made it difficult to hold companies and government officials accountable,” Agbakoba said.

He also raises red flags about Nigerian shipping companies not being engaged to ship crude oil products due to the absence of a legal framework for developing a national fleet of vessels, leading to significant loss of potential revenue and employment opportunities.

“Funds from crude oil production are often domiciled in foreign banks, sometimes held for months before remittance to the Central Bank of Nigeria, depriving Nigerian banks of substantial business and the economy of potential multiplier effects,” he added.

To change the narrative, Agbakoba recommends the need to strengthen NIMASA’s capacity to collect taxes from oil rig companies through training, technology adoption, and increased resources.

“There is a need to implement stricter regulations and penalties for tax avoidance in the industry,” Agbakoba said.

He also advised the need to conduct a comprehensive audit of all oil rig operations in Nigerian waters to identify and address tax leakages.

“There is a need to establish a specialized task force within the Federal Inland Revenue Service (FIRS) focused on oil and gas taxation,” Agbakoba said.

Agbakoba advised the federal government to complete the privatisation process of NNPC to separate its regulatory and operational roles, a development expected to improve efficiency and transparency.

“Clarify the roles of different regulatory agencies to reduce overlap and improve efficiency. Establish a single, powerful regulatory body to oversee all aspects of the industry. Fully implement the Petroleum Industry Act (PIA) 2021,” Agbakoba said.

Agbakoba said Nigeria could increase its oil and gas revenue by 30-40 percent within 5-10 years with improved efficiency, transparency, and local participation.

“This could translate to an additional $15-20 billion annually based on current production levels,” he added.

He noted that developing a national fleet for oil and gas shipping could save Nigeria $10-$15 billion annually in foreign exchange.

“In addition to local content development, there should be a deliberate strategy to headhunt the best talents in the world to ensure that Nigeria’s participation in the oil and gas industry increases from the current 30 percent to 70 percent in the next 3 years,” he concluded.