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The Role of Taxation in Nigeria's Oil and Gas Sector Reforms

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The Role of Taxation in Nigeria's Oil and Gas Sector Reforms THE ROLE OF TAXATION IN NIGERIA’S OIL AND GAS SECTOR REFORMS – LEARNING FROM THE CANADIAN EXPERIENCE A Thesis Submitted to the College of Graduate Studies and Research In Partial Fulfillment of the Requirements For the Degree of Master of Laws In the College of Law University of Saskatchewan Saskatoon By MOBOLANLE O. ODUNTAN Copyright Mobolanle O. Oduntan, November, 2015. All rights reserved. PERMISSION TO USE In presenting this thesis in partial fulfilment of the requirements for a Master of Laws degree from the University of Saskatchewan, I agree that the Libraries of this University may make it freely available for inspection. I further agree that permission for copying of this thesis in any manner, in whole or in part, for scholarly purposes may be granted by the professor or professors who supervised my thesis work or, in their absence, by the Dean of the College of Law. It is understood that any copying or publication or use of this thesis or parts thereof for financial gain shall not be allowed without my written permission. It is also understood that due recognition shall be given to me and to the University of Saskatchewan in any scholarly use which may be made of any material in my thesis. Requests for permission to copy or to make other use of material in this thesis in whole or part should be addressed to: Dean of the College of Law University of Saskatchewan 15 Campus Drive Saskatoon, Saskatchewan S7N 5A6 Canada. i ABSTRACT Several stakeholders in Nigeria’s oil and gas industry have emphasized the need for petroleum sector reforms in Nigeria. Canada is reputed to have one of the best oil and gas tax regimes in the world. This thesis argues that certain tax measures in Canada’s oil and gas industry have considerable potential for addressing certain industry inefficiencies in Nigeria’s petroleum sector. In developing this argument, this thesis gives an overview of oil and gas taxation in both jurisdictions and examines the possibility of transferring laws between Nigeria and Canada by exploring legal and tax comparative law theories. The thesis also examines the major challenges in Nigeria’s oil and gas industry and identifies viable areas in Canada’s oil and gas tax system which have the potential to address these challenges. Given the peculiarities of oil and gas taxation in each jurisdiction, this thesis suggests that the selected Canadian fiscal and administrative measures may require certain modifications in order to make these measures more suitable for Nigeria’s legal and tax system. ii ACKNOWLEDGEMENTS First, I thank God for giving me the strength and clarity of mind to write this thesis. He alone made it possible for me to complete this amazing journey. I am also grateful for the support I have received academically, financially and morally in the process of writing this thesis. My deep appreciation goes to Professor Tamara Larre, for giving me the freedom to wander intellectually and for helping me work through my ideas with insightful comments and prompt replies to my many emails. I could not have wished for a more approachable and considerate supervisor. I also appreciate my Advisory Committee members - Professor Heather Heavin for the direction she provided at the outset of this thesis and Professor Ibironke Odumosu-Ayanu for her valuable suggestions and thought-provoking questions. Your close attention to my work and helpful comments have made me a better researcher. I would also like to appreciate Professor Kim Brooks for her time and willingness to evaluate my work as an external examiner. Thank you. I wish to acknowledge the generous funding and supportive academic environment provided to me by the College of Law, its faculty and staff. I also appreciate my colleagues within the LL.M. program whose warm company and occasional conversation made my LL.M. experience more enjoyable. Finally, but most importantly, my deepest gratitude goes to my family members for their unwavering support, especially, in my moments of fear, discouragement and exhaustion. To my husband, Oladepo, thank you for allowing me to ramble on about my research and for acting interested! Your faith in me and good-humored nudging kept me going. iii DEDICATION To those who work tirelessly to ensure that “the labor of our heroes past shall never be in vain”. iv TABLE OF CONTENTS Page PERMISSION TO USE ................................................................................................................. i ABSTRACT ................................................................................................................................... ii ACKNOWLEDGEMENTS ........................................................................................................ iii DEDICATION.............................................................................................................................. iv TABLE OF CONTENTS ............................................................................................................. v CHAPTER ONE ........................................................................................................................... 1 INTRODUCTION AND BACKGROUND ................................................................................ 1 1.1 Introduction ............................................................................................................... 1 1.2 Structure of the Thesis ............................................................................................... 3 1.3 Background ................................................................................................................ 5 1.3.1 The Need for Petroleum Sector Reforms in Nigeria ................................................. 6 1.3.1.1 The Ripple Effect of Recurrent Fuel Shortages ......................................................... 6 1.3.1.2 Lack of Transparency and Accountability ................................................................. 8 1.3.1.3 Environmental Degradation and its Consequent Effects ......................................... 11 1.3.1.4 Tax Evasion ............................................................................................................. 14 1.3.1.5 Inadequate Technology and Qualified Personnel in Tax Administration ............... 15 1.3.2 Justifying the Preference for Canada as a Comparator ............................................ 17 1.3.3 Some Criticisms and Challenges of the Canadian Petroleum Industry ................... 19 1.3.4 The Role of Taxation ............................................................................................... 21 1.3.5 Using the Tax System as a Tool for Nigeria’s Oil and Gas Reforms ...................... 22 CHAPTER TWO ........................................................................................................................ 25 TAXATION OF OIL AND GAS CORPORATIONS IN CANADA AND NIGERIA ......... 25 2.1. Overview of Corporate Taxation in the Canadian Oil and Gas Industry ................ 25 2.1.1 Corporation Taxes ................................................................................................... 26 2.1.1.1 Federal Tax .............................................................................................................. 27 2.1.1.2 Provincial Tax .......................................................................................................... 28 2.1.2 Royalties and Other Applicable Taxes .................................................................... 29 2.1.3 Oil and Gas Tax Administration in Canada ............................................................. 31 2.2 Overview of Taxation in the Nigerian Oil and Gas Industry .................................. 32 2.2.1 Corporation Taxes ................................................................................................... 33 v 2.2.1.1 Petroleum Profits Tax .............................................................................................. 34 2.2.1.2 Companies Income Tax ........................................................................................... 40 2.2.2 Royalties and Other Applicable Taxes .................................................................... 43 2.2.3 Oil and Gas Tax Administration in Nigeria ............................................................. 44 2.2.4 Imminent Tax Reforms in the Nigerian Petroleum Industry ................................... 45 2.3 Legal Considerations for the Proposed Reforms ..................................................... 50 2.3.1 Ownership of Mineral Rights and Government Participation ................................. 50 2.3.2 Legislative and Taxing Powers ................................................................................ 52 CHAPTER THREE .................................................................................................................... 54 LEGAL TRANSPLANT THEORIES: AN APPROACH TO OIL AND GAS REFORMS IN NIGERIA................................................................................................................................ 54 3.1 Legal Transplant Theories ....................................................................................... 55 3.1.1 Alan Watson’s School of Thought .......................................................................... 56 3.1.2 Pierre Legrand’s School of Thought ....................................................................... 57 3.1.3 Otto Kahn-Freund’s School of Thought .................................................................
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