Grant of pioneer status does not exempt companies from paying taxes

The Tax Appeal Tribunal (TAT) Lagos Zone in the case of TAT/LZ/PPT/011/2020- Federal Inland Revenue Service v. New Cross Petroleum Ltd, on June 10, 2021 delivered a landmark judgment in respect of the eligibility of oil companies to enjoy tax holidays. The Tribunal held that the Nigerian Investment Promotion Council (NIPC), having withdrawn the grant of Pioneer Status to the company for the years of assessment (2011 and 2012), Newcross Petroleum Limited is thereby liable to pay all taxes as assessed.  

By a Notice of Appeal dated August 14, 2020, the Federal Inland Revenue Service (FIRS) instituted the action at the TAT, to recover outstanding Petroleum Profit Tax (PPT), Education Tax (EDT) and Capital Gains Tax (CGT) from Newcross Petroleum Limited.

Counsel to FIRS, Mr. Bashir Ramoni of SimmonsCooper Partners, argued that the oil company was improperly granted pioneer status and therefore liable to pay all relevant taxes. Mr. Ramoni further argued that pioneer status can only exempt eligible companies from paying taxes. He also submitted that there was no valid objection to the FIRS assessment and demand notice for the payment of PPT, EDT and CGT respectively. He contended that the report of the Inter-Ministerial Agencies Committee recommending a waiver for the affected companies could only be implemented pursuant to the approval of the President of the Federal Republic of Nigeria as required by Section 89 of CITA, which has not been granted till date.

Newcross in its reply argued that the pioneer status granted to it was valid. It also relied on letters issued by the NIPC to establish its validity.

In its judgment, the TAT agreed with FIRS that Newcross made profits during the years of assessment; therefore, FIRS had the power to assess them for taxes, irrespective of the pioneer status. Furthermore, Newcross could no longer claim pioneer status as the purported status had been withdrawn for the year 2011 and 2012 by NIPC’s letter (Exhibit AW8).

The Tribunal observed on the eligibility of oil and gas companies for the grant of pioneer status by stating: “Whilst the Industrial Development Income Tax Relief Act (IDITRA) and its subsequent amendments are unambiguous as to the industries and products that qualify for pioneer status incentive (PSI), the oil and gas industry is certainly not one of suchThe Tribunal further stated that there has been no attempt whatsoever till date to amend existing legislations to accommodate particular players in the oil and gas industry.

Consequently, the Tribunal held that the notice of assessment and demand notices issued and served on Newcross had become final and conclusive. The Tribunal ordered Newcross to pay the assessed outstanding Petroleum Profit, Education and Capital Gains Tax liabilities in the total sum of $5,095,361.22, as well as related interest and penalty.

Ugbu is a Lagos based lawyer