Petroleum companies: returns, instalments, penalties, assessments, enforcement and disputes

An upstream company is two days late with its estimated return, a month late paying a royalty and has understated its profit by a figure that cost the government US$2 billion in tax. The penalties are not the ones a manufacturer or a trader would meet.

They start at ₦10 million on the first day, run at ₦2 million a day, and the worst of them can end with the lease being revoked. For companies in the extractive industries, filing dates, instalment dates and penalties are examined as a package, and each one carries a number that must be exact.

This topic covers fiscal stabilisation, the penalties for petroleum companies under the Nigeria Tax Administration Act (NTAA) 2025, registration and filing of returns, assessments and objections, the anti-avoidance rules, the payment of tax in instalments, enforcement powers and dispute resolution. The previous topic covered royalty, gas incentives and the host community fund. The next covers the older petroleum profits tax and production sharing contracts.

Key terms in plain English

Syllabus check

This topic is in syllabus area F (taxation of incomes of extractive industries, 20% of marks). It covers:

• fiscal stabilisation, offences and penalties, registration and filing of returns;
• artificial transactions, prohibited tax avoidance arrangements, payment of tax and enforcement;
• dispute resolution under the PIA.

CAMA 2020 and compliance by petroleum companies

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The rules in more depth

Fiscal stabilisation

For a production sharing contract or other contract made after the PIA took effect, a stabilisation clause does not apply to the fiscal provisions of the Act, whether a change helps or hurts the contractor, as long as the change is not discriminatory against the industry or the contractor.

The provisions covered are:

• generally applicable taxes (income tax, development levy, VAT, stamp duties and deduction at source)
• levies and payments to meet modern environment, labour, health and safety principles
• new taxes under the Climate Change Act or to meet Nigeria’s climate commitments

Offences and penalties (NTAA ss. 128 to 137)

Registration and returns

• Self-assessment return (s. 11). Every company files at least once a year, with the self-assessment form, audited financial statements, tax and capital allowance computations, proof of payment, the effective tax rate computation where it applies, and an attestation by a principal officer. A small company may attach a statement of accounts. The return is due within six months of the year end; for a new company, within 18 months of incorporation or six months after the first year end, whichever is earlier; for a company that closes down, within six months of closing. Each company names a representative, who must be an accredited tax agent if he is a paid agent.
• Liquefied natural gas companies (s. 12). An estimated return within two months of the start of each period.
• Estimated return, upstream (s. 16). Within two months of the start of the accounting period, for hydrocarbon tax, petroleum profits tax and income tax. It contains estimated revenue, adjusted and assessable profit, a schedule of qualifying expenditure and allowances, a schedule of production allowance and cost price ratio for the two classes, estimated chargeable profit and tax, and a declaration. When price, cost or volume change, a revised return is filed every month. The service validates the return and, if none is filed, may estimate on its best judgement.
• Actual return (s. 17). Audited accounts and returns within 18 months of incorporation for a new company, and within five months of 31 December for others, with the lifting details, actual profits, allowances, the production allowance and cost price ratio schedules, the chargeable profit and tax, self-assessment forms and proof of payment of the final instalment.
• Monthly royalty return (s. 18). By the 14th day of the following month, even if there was no production, with volumes by field, fiscal prices, the computations by production and by price, proof of payment and a signed declaration. Domestic gas needs destination certificates. Additional royalty is paid within 30 days of the assessment notice.
• Annual royalty return (s. 19). Within five months of the end of the accounting period.

Assessments

• Self-assessment (s. 34). A return in the prescribed form is itself an assessment. The authority may accept it, accept it and raise an additional assessment, or reject it and assess to the best of its judgement. If the taxpayer under-declares, it owes the outstanding tax from the due date with penalty and interest.
• Administrative assessment (s. 35). If no return is delivered, the authority may assess to its best judgement, or in jeopardy before the due date.
• Additional assessment (s. 36). Within six years of an assessment, and for an audit that began before the six years ended; at any time for deliberate misstatement.
• Form of assessment (s. 37). Names the company, the accounting period, the chargeable profits and the tax; amendments are made in the same way; copies form the assessment list.
• Deemed profit (s. 38). If a business shows no profit or less than expected, a resident is assessed on a fair percentage of gross income; a non-resident on its profit margin (EBIT to revenue) applied to its Nigerian turnover.
• Currency (s. 39). Tax is assessed in the currency of the transaction and paid in that currency; petroleum computations are in that currency.
• Notice (s. 40) and objection (s. 41). A notice may be served by hand, registered post, courier or electronically. An objection must be written, made within 30 days of service (extendable for good cause) and state the issues, the amendment sought, the justification, the profits admitted and the tax admitted. The authority may call for books and summon witnesses. If the parties agree, the assessment is revised. The authority must reply within 90 days, or the objection is upheld. If it rejects the objection, the taxpayer may appeal.
• Errors (s. 42). An assessment is not invalid for a defect of form or a wrong name or amount if its substance is right and the company is clearly identified.
• Final and conclusive (s. 43). When no valid objection or appeal is made in time, or the amount is agreed, revised or decided on appeal.

Anti-avoidance

Section 46 lets the authority disregard a disposition that is not given effect or a transaction that reduces tax and is artificial or fictitious, and adjust the liability. A transaction between connected persons (NTA s. 193) is deemed artificial if it is not on arm’s length terms. The taxpayer may appeal as if the direction were an assessment.

Section 47 lets it counteract a prohibited tax avoidance arrangement unless the taxpayer proves the benefit is in line with the object and purpose of the law. An arrangement is prohibited if its main purpose is a tax advantage, the advantage is contrary to the object of the law, it misuses or abuses the law, or it lacks commercial substance.

Payment of tax (s. 50)

Tax for an accounting period is paid in equal monthly instalments and a final instalment. The first is due not later than the third month (31 March), at one-twelfth of the estimated tax. Each later one is due by the last day of its month and equals the latest estimated tax, less what has been paid, divided by the instalments left.

The final instalment is due on or before the due date of the self-assessment, for the tax assessed less what has been paid. The twelve instalments fall due on 31 March, 30 April, 31 May, 30 June, 31 July, 31 August, 30 September, 31 October, 30 November, 31 December, 31 January and the last day of February.

Enforcement (NTAA ss. 57 to 69)

• s. 57: notice to file a return, attend, produce books and give access to electronic and cloud records; at least seven days; an extension can be sought before the time ends for good cause; returns carry a declaration.
• s. 58: free access to land, buildings, books and documents, including computers; the service takes the media or makes an exact copy; the occupier must help and answer questions; a private dwelling needs consent or a judicial warrant in the Second Schedule form, valid for three months and renewable.
• s. 59: books may be removed to copy; copies certified by the chief executive are admissible; a receipt is given.
• s. 63: unpaid petroleum or mineral royalty or tax after a demand notice is reported to the Commission or the ministry for revocation of the licence or lease.
• s. 64: power to investigate, with special purpose tax officers and law enforcement; prosecution of offences; a judicial order may freeze property under investigation.
• s. 65: unpaid tax carries 10% added, plus interest at the monetary policy rate (naira) or SOFR (foreign currency) with a spread set by the Minister; a demand notice follows, and after 30 days the authority may enforce payment. Penalty and interest are not tax for relief purposes.
• s. 66: remission of penalty or interest for good cause. s. 67: tax is a debt; under-assessment or wrongful repayment can be recovered within six years unless caused by an untrue document or statement. s. 68: debts may be assigned to an accredited third party after legal steps are exhausted. s. 69: rewards to informants, whose identity is kept secret.

Dispute resolution

Disputes about the operation of the PIA go to two bodies. The Federal High Court has exclusive jurisdiction over matters on mines and minerals, including oil fields, mining, geological surveys and natural gas (Constitution, s. 251(1)(n)). This covers land and compensation disputes (PIA s. 101), judicial review of a refusal of a licence by the Authority (s. 111) and disputes between licensees and the Commission or Authority (s. 218(7)).

The Tax Appeal Tribunal hears tax disputes with the revenue service; it replaced the Body of Appeal Commissioners, which the Court of Appeal held unconstitutional in Cadbury v FBIR. The Commission and the Authority can also resolve certain disputes, and the PIA provides for mediation and arbitration through an Alternative Dispute Resolution Centre.

Worked examples

1. Estimated return: within two months of 1 January, by 28 February 2026; revised monthly if price, cost or volume change.
2. Actual return and audited accounts: within five months of 31 December, by 31 May 2027.
3. Royalty for March 2026: by 14 April 2026; annual royalty return by 31 May 2027.

1. Penalty = ₦10m on day one + ₦2m × 4 later days = ₦18m.
2. If a revised return is also missing, interest runs at SOFR plus 10 percentage points on the extra tax.

1. 10% added = ₦50m.
2. Daily penalty.
   ₦10m + ₦2m × 2 = ₦14m.
3. Interest runs at 2% above the monetary policy rate for naira (or SOFR plus 10% in dollars). The licence may be put at risk.

1. 1% × 2,000 = ₦20m, which is higher than ₦15m, so the penalty is ₦20m.
2. The company also pays the ₦2,000m of tax that was undercharged.

1. First instalment, due 31 March = 120 ÷ 12 = US$10m.
2. April instalment.
   (132 − 10) ÷ 11 instalments left = US$11.09m.
3. The final instalment is due on or before the self-assessment date, for the tax assessed less all instalments paid.

How to score full marks

• Give the section, the filing period and the date for each return.
• Quote penalties with the first-day figure and the daily figure.
• Apply the instalment formula, not a simple division, after the first instalment.
• Separate s. 46 from s. 47 and name the tests in s. 47.
• Name the forum: tribunal for tax, Federal High Court for the PIA.

Common mistakes in the exam

• Giving six months for the actual return of a petroleum company instead of five.
• Writing the royalty return date as the 21st (that is for minerals).
• Mixing the late return and late payment penalties.
• Dropping the 1% test in the penalty for incorrect accounts.
• Forgetting that an objection unanswered after 90 days is upheld.
• Sending a PIA dispute to the tribunal.

Quick revision

• Estimated return 2 months; actual return 5 months; royalty return 14th.
• Late return ₦10m + ₦2m a day; late payment 10% + interest + ₦10m + ₦2m a day.
• Incorrect accounts: higher of ₦15m and 1%.
• s. 46 artificial; s. 47 prohibited; s. 57 call for records; s. 63 revocation; s. 64 investigation.
• Objection 30 days; reply 90 days; appeal to the Tribunal.
• CAMA 2020: ss. 54, 119, 305, 308, 377(1), 378.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

Recent ICAN papers are written, although older papers such as May 2014 included multiple-choice questions. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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