FISCAL as a word has two etymologies,1 and it relates to taxation, public revenues or public debt management and policies.2 Normally, we speak of fiscal policy, which is a deliberate governmental action that attempts consciously to control the actions of individuals and companies by means of spending and taxation decisions. It has been stated that the expenditure side of fiscal policy could be achieved by spending money
in ways that stimulate other activity.3 Whereas fiscal policy as it relates to taxation can affect work, investment or production decisions by changing tax rates and levels.
Thus, fiscal policy effectually strikes a balance between the resources the government puts into the economy through expenditures and that it takes out through taxation, charges or borrowing. When government takes the bold step of concretising its fiscal policy the end product is laws, for instance tax laws, or policy statements, for instance budgets. For our purposes, we are concerned with the fiscal policy as it relates to what the government takes out through taxation. In other words, any reference to fiscal laws in this work means those laws that touch upon taxation, and more specifically the taxation of petroleum operations in Nigeria.
Taxation plays a central role in matters of fiscal policy. This role was emphasized by the United States Supreme Court when Justice Potter Stewart4 made an astute observation regarding the pervasive nature of taxation. According to the Learned Justice,
- In French, it is called fiscus; In Latin it is called fiscalis.
- Webster’s Third New International Dictionary (Unabridged), Massachusetts: Merriam-Webster, 1993, p. 857.
3 “fiscal policy.”
Encyclopædia Britannica. Ultimate Reference Suite. Chicago: Encyclopædia
Britannica, 2010. 4
United States v. Bisceglia (1975) 420 U.S. 141, 154
“virtually all persons or objects in this country… may have tax problems. Every day the economy generates thousands of sales, loans, gifts, purchases, leases, wills and the like, which suggest the possibility of tax problems for somebody. Our economy is “tax relevant” in almost every detail”.
No wonder, then, that the petroleum sector of the Nigerian economy is not immune from the pervasive tendencies of taxation, an inherent element of fiscal policy. However the reason for this is not farfetched: the petroleum industry is a major revenue earner for the government, through, among others, royalties, bonuses, rents, percentages from the production sharings contract, taxes, etc.5
Principally, the Nigerian petroleum industry is divided into two broad categories: upstream operations and downstream operations. There is an adjunct to the petroleum industry, natural gas operations. Upstream operations involve exploration and production of crude oil, under governmental grant of licence6 by companies for sale or disposal. On the other hand, downstream operations involve those activities which culminate in value addition and improvement upon the end product of upstream operations. In other words those companies engaged in refining and distribution of petroleum products are captured here. Natural gas is a colourless, highly flammable gaseous hydrocarbon consisting primarily of methane and ethane and it is a type of petroleum that commonly occurs in association with crude oil. Thus both natural gas and crude oil are hydrocarbons. In this work natural gas is classified under petroleum operations, though as an adjunct and will be so treated.
AN ANALYSIS OF THE EFFICACY OF FISCAL LAWS RELATING TO PETROLEUM OPERATIONS IN NIGERIA