On Friday, 12 November 2021, the Tax Appeal Tribunal (TAT or “the Tribunal”) Lagos Zone decided in Seplat Petroleum Development Company Plc (Seplat or “the Company” or “the Appellant”) vs the Federal Inland Revenue Service (FIRS or “the Respondent”), that the Appellant’s claim of five (5) years tax holiday (granted under Section 39 of the Companies Income Tax (CIT) Act Cap. C21, LFN 2004 to companies engaged in downstream gas utilization) was unlawful and invalid.

Facts of the case

Seplat had commissioned a natural gas plant for downstream gas utilization purposes in 2015. Subsequently, the Ministry of Petroleum Resources (MPR) through the Department of Petroleum Resources (DPR) issued a letter dated 8 April 2015 to Seplat directing the Company to introduce hydrocarbon to the new gas plant following a satisfactory completion of mechanical and precommissioning activities of the gas plant. Thereafter, the Company, on the basis that the letter from MPR satisfied the condition provided under Section 39(2) of the CIT Act, adopted a production date of 13 May 2015, and claimed the related tax incentives.

However, the FIRS disagreed with Seplat’s position and issued additional CIT and Tertiary Education Tax (TET) assessments for 2016 and 2019 years of assessment (YOAs) following two desk reviews of the Company’s tax returns for the relevant years. The Company duly objected to the FIRS’ assessments noting that it had tax holidays for the years under review and, therefore, had no tax obligations to the FIRS. The Company further noted that its entitlement to the tax relief for the initial period of three years and extension for additional two years were automatic once the conditions provided under Section 39 of the CIT Act had been fulfilled. The FIRS disagreed with the Company’s objection and issued Notices of Refusal to Amend (NORA) without further attempts to reconcile the disputed tax position. Aggrieved by the issuance of the NORA, Seplat appealed the assessments at the TAT.

Seplat argued that its upstream petroleum operations are irrelevant regarding the claim of incentives under Section 39 of the CIT Act, as the CIT Act does not limit the incentives to companies wholly and exclusively engaged in the business of downstream gas utilization. Furthermore, the incentives were never claimed on the same qualifying capital expenditure. Therefore, the Company was entitled to the tax incentives granted under the Continue reading...