In yet another example of why Nigeria is a difficult place to do business, the Akwa Ibom state government through its Internal Revenue Service has taken Total E&P Nigeria to court over alleged N25 billion arrears of unpaid taxes. It has also given the company a 7 day ultimatum to pay up. The tough economic climate in the country has made all arms of government to redouble their efforts to increase Internally Generated Revenue (IGR). In many cases, it has also made businesses to default on taxes and levies.
Why did the state government have to wait so long before taking the company to court ? The court action may end up more beneficial to the company than the state. Court cases often take months or years to be concluded. The company continues with its activities, while the state is left struggling for revenue.
The implied threat to shut down the company’s activities will leave the state worse off. It creates a negative image for potential investors, as an unfriendly place to do business. Artisans and other low-level jobs occupied by members of the host community will be laid off. The lay off leads to a drop in spending so small businesses where Total operates will also be affected. A shut down of the company’s operations will also affect its ability to pay the taxes even after the case has been resolved.
The drop in global oil prices means exploratory activities by oil companies is on a decline. The rise of shale oil which has cheaper production costs than conventional crude oil exploration, has also increased cost pressures for many oil companies. Many countries are offering tax holidays and other incentives to encourage oil companies to prospect. Total could decide to focus its efforts on more accommodating business environments.
Total Exploration and production Nigeria was incorporated in 1962, and has produced over 3 billion barrels of petrol from 1966 till date. The company also has holdings in Shells’s Bonga field and the Nigerian Liquefied Natural Gas project.
