InsideTax

VAT on petroleum products: Will the “change” era

bring relief?
One polemic that has confronted companies engaged in the marketing and distribution of
PMS, AGO, DPK and aviation fuel around VAT is whether or not VAT is/should be
chargeable on these petroleum products
Today's reality is that despite an revenue collected and its
installed capacity of 445,000 b/d, expenditure? 2
Nigeria is struggling to achieve
adequate and stable supply of refined Taxpayers would only understand and
products. The nation's refineries have trust the tax system when taxes and
not at any time aggregately operated related compliance requirements are
at full capacity and have over the years kept simple, certain and clear.
fallen into a state of disrepair due to
neglect, irregular and/or shabby turn
around maintenance regimen.
Reliance has been placed on
importation to make up the short-falls
in daily supply of refined petroleum Taxpayers would only
products domestically.
understand and trust
Eleven (11) years ago, the Federal
Government opted for full
the tax system when
deregulation in the downstream
sector. This agenda was touted to be
taxes and related
motivated by three main objectives. compliance
First was the need to re-appraise
government involvement and requirements are kept
participation in the downstream
sector. This was reflected in
simple, certain and
Government's desire to reduce and
e/or eliminate subsidies to the sector
clear
to enhance the prospects cost
reflective prices to emerge. Second
was the need to engage private capital
in the ownership and operation of
assets in the sector. Third was the VAT is a multistage consumption tax, Marketers and distributors appear to Is the constructive VAT exemption
? 1
FIRS Q3 2015 report).
need to achieve security of supply which is charged and payable on the have relied on a letter of 2005 from applicable only to subsidized
2 National Tax Policy
through free interplay of the forces of supply of all goods and services, the Petroleum Product Pricing petroleum products or does this
demand and supply. other than those listed in the First Regulatory Agency (PPPRA) not to extend to AGO in its post-
Schedule (exempted items) to the charge VAT given the regulation of regulation era?
It was then expected that market Act. Goods exempted include, but retail pricing and provision of subsidy This publication contains general
Is the constructive VAT exemption
?
forces would have free rein in are not limited to, basic food items, to reduce the cost burden to citizens information only and Akintola Williams
on PMS and DPK to those sold at
determining the retail prices of baby products, all exports, books and in relation to these “essential” Deloitte is not, by means of this
filling stations or does this extend
petroleum products principally educational materials. Since its products. Naturally, the imposition of publication, rendering accounting,
to contract for supply of same? If business, financial, investment, legal, tax,
kerosene (DPK), automotive gas oil introduction in 1993, Value-added VAT will increase the amount payable
yes, why? or other professional advice or services.
(AGO/diesel), and premium motor Tax (VAT) has become an important by the final consume and this may
spirit (PMS/petrol) rather than for source of revenue to the Federation contradict the objective of the No doubt, taxation remains a Deloitte refers to one or more of Deloitte
government to fix their retail prices which is available for distribution subsidy. There is need for marketers sustainable source of Government Touche Tohmatsu Limited, a UK private
respectively. Eleven years on the amongst the federating units. VAT and distributors of these petroleum revenue due to “the stability and company limited by guarantee (“DTTL”),
reality is not different. Indeed, the accounts for about 20% of the total products to be able to manage their certainty of the tax system”. Thus, its network of member firms, and their
level of subsidies in the sector has tax revenue generated in the country.1 exposure to penalties, interests and the expectation of the National Tax
related entities. DTTL and each of its
other risks arising from a potential member firms are legally separate and
horribly exceeded the 2004 levels! Policy is to resolve the following independent entities. DTTL (also referred
One polemic that has confronted allegation of non-compliance with issues amongst others: to as “Deloitte Global”) does not provide
Nevertheless, the activities in the companies engaged in the marketing the provisions of the VAT Act. services to clients. Please see
downstream sector are such that the and distribution of PMS, AGO, DPK Who collects what?
? www.deloitte.com/about for a more
Federal Government should be able to and aviation fuel around VAT is In this regard, the following detailed description of DTTL and its
questions beg for response: How is it collected?
?
member firms.
assess and collect both direct and whether or not VAT is/should be
indirect taxes. At the center of the chargeable on these petroleum Does the relevant PPPRA letter of
? Who controls what is collected?
?
Akintola Williams Deloitte a member firm
collectible indirect tax is value added products. Industry practice appears to 2005 have any status under the of Deloitte Touche Tohmatsu Limited,
tax (VAT). The VAT Act, Cap V1, Laws be not to charge VAT. However, FIRS How is what is collected shared?
?
VAT Act? provides audit, tax, consulting,
of the Federation of Nigeria, 2007 (as has not accepted this practice on the Who is responsible for spending
? accounting and business process
amended) provides the legal basis for basis that refined petroleum products Is there not a need for FIRS and
? solutions, corporate finance and risk
what is collected?
the imposition of VAT on supply of all are not on list of items expressly PPPRA to provide clarity on this advisory services to public and private
goods and services in Nigeria except exempted from value added tax (VAT) matter to guide affected Who is ultimately responsible and
? clients spanning multiple industries.
those specifically exempted. in Nigeria. Is this matter that simple? taxpayers? accountable to taxpayers for the Please visit us at www.deloitte.com/ng

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Oluseye Arowolo Fatai Folarin

Partner | Tax & Regulatory Services Lead Partner | Tax & Regulatory Services
oarowolo@deloitte.com ffolarin@deloitte.com
© 2015. For information, contact Akintola Williams Deloitte