The Problem
An upstream Nigerian oil and gas company faced persistent financial leakages that significantly impacted its cash flow. Despite generating substantial revenue from crude oil exploration and production, the company struggled with high tax liabilities and inefficient tax processes, leaving little room for reinvestment in critical projects and operations.
The company’s challenges included unclaimed capital allowances, over-remittance of withholding taxes (WHT), underutilisation of available tax incentives, and poor tracking of recoverable Value Added Tax (VAT). Frequent tax audits revealed inconsistencies that led to substantial penalties and interest on overdue taxes. These inefficiencies created a liquidity crunch, necessitating a robust tax strategy to eliminate financial leakages and stabilise cash flow.
The Solution
Our tax experts conducted a comprehensive review of the company’s tax processes to identify inefficiencies and implement a strategic tax planning framework. We began with an in-depth analysis of the company’s tax compliance records over the past five years and assessed its effective tax rate. This included a detailed tax health check covering areas such as overpayment, unclaimed capital allowances, missed incentives, and audit triggers.
We recalibrated the compliance framework to ensure accurate reporting of deductible expenses, maximisation of capital allowances, and proper tracking of WHT credits. The fixed asset register was reviewed and restructured to align with the Nigerian Petroleum Profits Tax (PPT) Act and Petroleum Industry Act (PIA). This involved categorising assets appropriately and updating depreciation schedules for accurate tax computations.
To build the company’s internal capacity, we conducted regular training sessions for the finance team, equipping them with the knowledge and tools for proactive tax management.
The Result
Through these interventions, the company achieved substantial financial savings within the first fiscal year. Over $15 million in overpaid taxes was recovered from the Federal Inland Revenue Service (FIRS) and used to offset subsequent liabilities, significantly improving cash flow.
The utilisation of tax incentives and allowances reduced the company’s effective tax rate by 15%, freeing up additional resources for capital reinvestment. Outsourcing tax filing eliminated manual errors and reduced the average time spent on tax compliance by 40%, allowing the finance team to focus on strategic activities.
Our streamlined tax management framework ensured full compliance with regulatory requirements, minimising audit risks and penalties. This not only plugged financial leakages but also created a sustainable pathway for growth and resilience in a volatile industry.