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Title Page---------ii




Table of Contents--------vi



Background of the Study ------1

Statement of the Research Problem---4

Research Objective------6

Scope of Study -------7


Significance of Study ------8

Research Methodology-----9

Limitation of the Study ------9

Definition of Terms ------10



2.1Overview of Taxation System in Nigeria ---13

2.2Tax Policy in Nigeria ------14

2.3Current Taxation Reforms in Nigeria---16

2.4Petroleum Profit Tax ------18

2.5Brief Background of Nigeria Oil Industry---19

2.6Refining And Distribution of Petroleum Products -21

2.7 Petroleum Products Marketing----23

2.8The Special Nature of Petroleum Industry ---25

2.9Industry Risk -------25

2.10High Cost of Investment -----26

2.11Long Load Time-------27

2.12 The Objectives of Petroleum Taxation ----28

2.12.1 The Paranormal Functions -----29

2.12.2 The Revenue Functions-----29

2.12.3 Wealth Redistribution Functions----30

2.12.4 Economic Functions------30

2.12.5 Other Functions ------31

2.13Allowances and Incentives in the Nigerian Petroleum

Industry --------32

2.14The Upstream Sector------35

2.15The Downstream Petroleum Sector ---37

2.16Legislature Governing Petroleum Activities in Nigeria -39

2.17Object of Taxation in Underdeveloped Economy

with Nigeria as a Focus-----40

2.18The Role of Taxation in National Development --42

2.19 Tax Administration ------44

References -------49


Introduction -------50

The Population and Sample-----50

Data Collection Method-----51

Source of Data ------52

The Research Instrument-----52

Data Analysis Method ------53

Limitation of Study ------54


Introduction -------55

Presentation of Regression Result----55

4.3Analysis of Regression Result ----59


5.1Summary of the Findings -----63

5.2Discussion of Findings------65

Policy Recommendations -----66

Recommendations for Future Research ---68


Appendix I--------72ABSTRACTThe basic reasons for taxation in any economy cater on the need to raise revenue for economic and social development and to guide tax payers’ behaviour.

Revenue from taxation accounts for over 80% of government earnings in Nigeria, hence, special attention is often paid by tax experts, economists and the larger public on how such revenue is being disbursed by government among the various economic sectors that make up the country.

The study, therefore, attempts to evaluate the impact of taxation as a source of government paying special emphasis on petroleum profit tax over a period of twenty years.

Data were collected through questionnaires from respondents’ statistical bulletins of the Central Bank of Nigeria.

Results were presented in tabular form. The ordinary least square method of data analysis was used for the analysis of the data collected from the Central Bank of Nigeria (CBN). The result of other findings showed that taxation as a source of government income has significant impact on the government revenue and expenditure, but despite such contribution to government revenue generation the country’s GDP is still low.

As a result of this finding, it was recommended that the government should take steps to meet it socio-political and economic obligations to the citizenry as this will lead to a growth in GDP.

Finally, the study underscores the urgent need for the improvement of the tax information system to enhance the evaluation of the performance of the Nigeria tax system and facilitate adequate macroeconomic planning implementation.




Taxation is one of the oldest and most important sources of governmental revenue in Nigeria. It has been in existence even before the amalgamation of Nigeria in 1914 as political entity. It occupies a central place in the revenue generation of the government and control.

Oil and crude oil production and the revenue derived from it remains the prime move of Nigeria’s economy, as at today the country’s major balance of payment, exchange rate, policy, monetary and fiscal policies and dependent on revenue from oil.

Revenue from oil has played a vital role in the execution of various national development plans and still continues to do so. During the country’s first plan period (1962-1968), the control of the oil industry was solely on hand of the multinational oil royalties and petroleum by oil companies under the petroleum profit petroleum by oil companies under the petroleum Profit Tax Act of 1967 (as subsequently amended).

Initially, the 1957 Act established the basic principles of equal sharing of profit between government and oil companies. This was achieved by fixing the rate of tax, certain receipt of government in Nigeria. However, amendment in early 1967 introduced more favourable features as far as government was concerned. Following the broad pattern already established in those major of producing countries whose governments where members of OPEC (Organization of Petroleum Exporting Countries).

The industries also contributes to the country’s balance of payment indirectly through the inflows of foreign exchange to purchase Nigeria’s currency so as to meet local commitment such as constructors’ and suppliers’ bills, salaries, wages and labours’ dues paid on the behalf of the supplies of crude oil export.

The most noticeable source of Nigeria revenue and foreign exchange earnings to the country is the oil. This accounts for as much as 90% of country’s total export earnings and total revenue of government.

With this so much attention is given to administration of petroleum profit tax. However, the first commercial production of oil in the world took place no Romania and the United States in 1950s.

Nigeria is the largest producers and exports of crude of petroleum as African South of Sahara. Nigeria is a member of the organization of Petroleum Exporting Countries (OPEC). It’s good quaintly varies between light crude of 450 average of 320 API.

Taxation of petroleum operation started in 1959 with the enactment of PPT – Petroleum Profit Department is responsible for the assessment and collection of:

PPT form exploitation and producing companies

CIT form oil marketing and pioneer companies

CIT form oil servicing companies

Education tax oil companies that are liable for either PPT or CIT.

No matter where an oil producing or serving company or pioneer company is located in Nigeria, its tax matter are handled by the petroleum profit department, unlike CIT where registered address of the business is used to determine registration. The law and agreement that given the PPT law collection are as follows:

PPT Act of 1959 as amended to date

Associated Gas Fiscal arrangement (AGFA) of 1997, 1998, and 1999 Budget Decree No. 18, 19 and 20 of 1998 provides more details.

Production sharing control (PSC) of 1993. The PSC deals with exportation and production of deep offshore international water of Nigeria. Decree of No. of 1999.


Petroleum profit tax is a tax paid by Oil Company involved in exploration and marketing with the production of 5, 100 barrels per day in 1958, the volume of production in the country. Multiplied impressively, over the year to 2.3 million barrels per day in 1979, until recently when the petroleum profit tax mainly because of these factors.

Calculation of petroleum profit tax is demanding partly as a result of the complexity of petroleum operation and partly because of the legislation of Nigeria.

The administration of petroleum profit tax at the topmost level has taken a positive dimension due to the enormous amount involved. This has been married by corruption with most recent case of multinational bribery scandal while the case never saw the light of the day in Nigeria.

The changeable profit i.e. based on national prize (referred to as posted) and partly because certain expenditure items are treated differently.

The tax is also reduced in respect of certain payment to government known as offsets in Nigeria. This fund of tax was before January 1st 1995. Only companies engaged in petroleum operation pay tax at posted prize.

In the light of the above, the relevant research questions are:

What is the relationship between revenue from petroleum profit tax (PPT) and Gross Domestic Product (GDP)?

What is the relationship between revenue from petroleum profit tax and total revenue?

Has the petroleum profit the Act of 1997 as amended for the collection and usage by federal government increase the expected development of the nation in general?


The objective of this research work includes the following:

To examine the relationship between revenue from petroleum profit tax and total revenue.

To examine the relationship between revenue from petroleum profit tax (PPT) and Gross Domestic Product.

To determine if the petroleum profit tax act of 1967 as amended for the collection and usage by the federal government has increased the expected development of the nation in general.


This study covers the adoption, implementation, impact of PPT collection and recommendation in the (PPTA) in Nigeria. Also the subject matter of this study is “TAX ADMINISTRATION FROM PETROLEUM PROFIT IN NIGERIA”.

The time period for this research is for the period of five years (2004 to 2008) fiscal year.

The sample size is more concerned with Nigeria’s Federal Inland Revenue Service of Edo State and Nigerian National Petroleum Company. Geographically, the study is specifically to Edo State and Delta State.


This aspect of the research work is concerned with acceptance of rejection of decision. The research hypothesis relevant to the above stated questions and objective were:

There is a positive relationship between revenue from petroleum profit tax (PPT) and Gross Domestic product (GDP).

There is a positive relationship between revenue from petroleum profit tax and total tax revenue.

The petroleum profit act of 1957 as amended for the collection and usage by federal government has increased the expected development to the nation in general.


This research work is being undertaken in order to bring to light the bright prospects and impact of PPT as a source of revenue in Nigeria and as it affects the general price level of economic activities in the country.

Much attention revenue generated in Nigeria is focused on the oil industry, which made research most significant. Yet it has not really attained its full potential though it generates over 90% of government revenue. In this research work, the company Nigerian National Petroleum Company (NNPC) was most relevant in this work and this company will definitely benefit this work.


The data for this study will obtained from secondary source. Mostly, descriptive statistics shall be observed and such, secondary data would be collected from journals and bulletins. Different samples will be collected on which percentage ratios and relevant tables considered necessary in use of having a better picture and understanding would be presented, thereby making data analysis more concise and simple.


The unwillingness of certain institution to make material information available in the course of study.

Confidentiality of information: coupled with the fact that the research is considered strange. Consequently vital information as certain areas resulting to the project topic are horded.

Time constraint: the researcher did not have enough time because of the related circumstances involved and corroborative nature of the topic.

Finance: since this research work is sponsored by researcher and not government or any organization, it is expected that the extent of the research work would be affected by financial constraint.

However, within the available limitation of resources, the researcher was accomplished with conclusion and recommendation drawn from the study.


Tax: A tax is a compulsory levy imposed by public authority on income profit or wealth of an organization individual or family, community, cooperate or incorporate body etc. for the public purpose.

Petroleum: Any mineral oil or relative hydrocarbon and natural gas existing in its natural condition in Nigeria including liquefied natural gas, coals or bitumen shale or other stratified deposit from which oil can be extracted by destructive distillation.

NNPC: NNPC (Nigerian National Petroleum Corporator) founded in 1977. It is the major partner in upstream unit venture with the “Seven sisters” or major.


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