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 installed capacity of 445,000 b/d, Nigeria is struggling to achieve adequate and stable supply of refined products. The nation's refineries have not at any time aggregately operated at full capacity and have over the years 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 products domestically.

Eleven (11) years ago, the Federal Government opted for full deregulation in the downstream sector. This agenda was touted to be motivated by three main objectives.  First was the need to re-appraise government involvement and participation in the downstream sector. This was reflected in Government's desire to reduce and e/or eliminate subsidies to the sector 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 need to achieve security of supply through free interplay of the forces of demand and supply.

It was then expected that market forces would have free rein in determining the retail prices of petroleum products principally kerosene (DPK), automotive gas oil (AGO/diesel),  and premium motor spirit (PMS/petrol) rather than for government to fix their retail prices respectively.  Eleven years on the reality is not different. Indeed, the level of subsidies in the sector has horribly exceeded the 2004 levels!

Nevertheless, the activities in the downstream sector are such that the Federal Government should be able to assess and collect both direct and indirect taxes. At the center of the collectible indirect tax is value added tax (VAT).  The VAT Act, Cap V1, Laws of the Federation of Nigeria, 2007 (as amended) provides the legal basis for the imposition of VAT on supply of all goods and services in Nigeria except those specifically exempted.

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