Background

The following fiscal incentives have been approved by the government in the gas production phase:
The tax rate under the Petroleum Profit Tax (PPT) Act to be at the same rate as company tax which is currently at 30 per cent; capital allowance at the rate of 20 per cent per annum in the first four years, 19 per cent in the fifth year and the remaining 1 per cent in the books; investment tax credit at the current rate of 5 per cent; royalty at the of 7 per cent on shore and 5 percent offshore.

Gas Exploitation (Upstream Operations)

All investments necessary to separate oil from gas from the reserves into suitable products are considered part of the oilfield development; Capital investment facilities to deliver associated gas in usable form at utilization or transfer points will be treated for fiscal purposes as part of the capital investment for oil development;
Capital allowances, operating expenses and basis for assessment will be subjected to the provisions of the PPT act and the revised memorandum of under standing (MOU).

Gas Utilization (Downstream Operations)

Incentives to encourage the exploitation and utilization of associated gas for commercial purpose include:
An initial tax-free period of three years renewable for an additional two years: 15 per cent investment capital allowance which shall be reduce the value of the asset;
All fiscal incentives under the gas utilization downstream operation in 1997 are to be extended to industrial projects that use gas in power plants, gas to liquid plants, fertilizer plants and gas distribution/transmission plants;
The initial tax holiday is to extend from three to five years; Gas is transferred at 0 per cent PPT and 0 per cent royalty; Investment capital allowance is increased from 5 per cent to 15 per cent; Interest on loans for gas projects is to be tax deductible, provided that prior approval was obtained from the federal ministry of finance before taking the loans; All dividends distributed during the tax holiday shall not be taxed.