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1.1 Introduction
Petroleum Profit Tax Act provides that: Assessment of tax shall be made in such form and in such manner as the Board shall authorize…1 But neither the Petroleum Profit Tax Act nor any other tax law in Nigeria made any provision for the definition of the term “tax” or the phrase “assessment of tax” or “the assessment of petroleum profit

In an Australian case of Mathews v. Chicory Marketing Board2, a tax has been defined as “a compulsory exaction of money by a public authority for public purposes, or taxation is raising money for the purpose of government by means of contributions from individual persons.”3 In addition, Mr. Justice Roberts, in an American case of United State v. Butler4, defined tax as follows:
A tax in general understanding of the term and as used in constitution, signifies an exaction for the support of government.”5
Accordingly, tax is not an optional payment or voluntary donation to the government. It is rather, a kind of an enforced contribution exacted in accordance with the legislative authority.
Therefore tax, in modern period takes the forms of pecuniary burden laid upon individuals or property to support government. It is normally imposed by statute.
The term “assessment” and the phrase “assessment of tax” as well, have also no statutory definition as mentioned earlier. The word ‘assessment’ has been defined in the Oxford Dictionary as:
“(i) A carefully considered opinions and judgment…
(ii) The action of assessing somebody or something …
(iii) An amount fixed for payment…” 6
The Chamber Dictionary also defined ‘assessment’ as:
“(i) The examining of income and profit to calculate the amount of tax to be paid.
(ii) The valuing of property to calculate the amount to be paid in rate.
(iii) The amount of a tax or charge.”7
Longman Dictionary also defined the word as:
“(i) A process in which you make a judgment about a person or situation
. (ii) A calculation about the cost or value of something e.g. tax assessment.”8
Furthermore, many different words are synonymously applicable with the term. Determination, calculation, estimation, evaluation, consideration appraisal and judgment inter alia, are all synonymous to it.9
Therefore the term “assessment” in it literal sense has a broad meaning. It is a process for taking decision and final judgment about a person or a situation or any other thing.
In its technical sense, the phrase ‘assessment of tax’ or ‘tax assessment’ in other words, has been defined as “the process of measurement of a taxable person’s tax obligation and putting him on notice in respect thereof.”10
Another contribution on this issue came from a scholar Okonkwori. In his book, he categorically stated that “an assessment of tax could be defined as a process whereby the tax officers and tax payer come together and have discussion concerning the general state of the business in order to ascertain what to pay as tax”11 In the same evein, professor Ayua simply defined it as “the process whereby the taxable income of taxpayers is ascertained.”12
Assessment of tax generally involves ascertaining the base of assessable profit of the tax, granting all the relieves and allowances as may be prescribed by law and applying the relevant tax rate.
Therefore, assessment of petroleum profit tax could also be defined as the process whereby profits, adjusted profit, assessable profits, chargeable profit, assessable tax and chargeable tax of an oil producing company are all ascertained.
Taxation emerges largely in our societies. It is now hard to see a government that does not rely on it. It is indeed of tremendous importance. It occupies a great space and significant position in the economy of the country.
The search for oil began in Nigeria in 1908. A German company pioneered it when it drilled fourteen wells in Ajebandele dry hinterland in Lagos. The World War 1 between 1914-1918 terminated this activity. But the establishment of the Shell Petroleum Development Company of Nigeria (ltd) in 1938 revived the interest in the possibility of discovering oil in Nigeria. The Royal Dutch Shell and the British Petroleum formally owned the company. It was known before as Shell D` Arcy and first situated at Owerri, Imo state. In November 1938, the company received an Oil Exploration License {OEL} covering the whole Nigeria. The operation of the company was suspended due to the Second World War. It then later resumed fully into its petroleum operations in 1956, at Oloibiri that is now in Bayelsa state.14 In 1957 the company reduced its acreage to 40,000 square miles of the Oil Prospecting Licenses (OPLs). Of this acreage, only about 15,000 square miles was converted into Oil Mining Licenses (OMLs) by the Shell B.P. The residual was returned to the Nigerian government in 1960.15
Towards the end of 1960, there were about nine petroleum exploring and producing companies holding Nigerian concessions (i.e. OPLs and OMLs). These are:
1-The Shell Petroleum Development Company of Nigeria Limited.
2-Gulf Oil Company Nigeria Limited.
3-Mobil Producing Nigeria Limited
4-Nigeria Agip Oil Company Limited.
5-Phillips Oil Company Nigeria Limited.
6-Safrap Nigerian Limited
7-Tenneco Oil Company of Nigeria Limited
8-Texas Overseas Oil Nigerian Petroleum Limited
9-Union Oil Nigeria.16
From the angle of taxation, the profits of all Nigerian and
foreign companies accruing in, derived from, brought into, or received
in Nigeria are normally taxed under the Companies Income Tax Act.17However, due to the peculiarities and complicated nature of oil
industries, the profit of companies engaged in petroleum operations
are not taxed under the Companies Income Tax Act.18 They are rather,
taxed under a special and separate legislation, that is the Petroleum
Profit Tax Act (PPTA).19 In other words, only the profit of the crude
oil producing companies that is subject to the PPTA.20
It was in 1959 that the first legislation governing the taxation of
revenue arising from the upstream oil sector was enacted, i.e. the
Petroleum Profit Tax of 1959.It was the principal Act, which has been
amended by the following legislation:
1-Income Tax (Amendment) Act no.65 of 1966.
2-Petroleum Profit Tax (Amendment) Act no.1 of 1967.
3-Oil Terminal Dues Act no.9 of 1969.
4-Petroleum Profit Tax (Amendment) Act no. 15 of 1973.
5-Petroleum Profit Tax (Amendment) Act no.55 of 1977.
6-Petroleum Profit Tax (Amendment) Act no.4 of 1979.
7-Petroleum Profit Tax (Amendment) Act no. 95 of 1979.
8- Petroleum Profit Tax (Amendment) Act no.23 of 1979.


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