Determinants of petroleum profit tax compliance in Nigeria: The mediating role of tax administration efficiency

Petroleum profit tax compliance amongst local and multinational oil companies has become a major concern for Nigerian policymakers. Low tax compliance in the country’s oil and gas sector is enormous and causes a loss of billions of dollars to the government annually. Hence, the objective of this study is to identify determinants of petroleum profit tax compliance amongst oil companies operating in Nigeria. The study adopts an economic deterrence model, which includes tax rates, detection probability and penalty, and corporate tax compliance variables: tax agents, tax audits, tax knowledge and tax complexity. The study introduces two additional predictor variables: environmental regulations and royalty rates. It also introduces tax administration efficiency as a mediating variable. Partial Least Squares-Structural Equation Model (PLS-SEM) is employed to analyse the data. The population of the study comprises 300 local and multinational oil companies. The results indicate positive but insignificant relationships between tax rates, detection probability, tax agents and petroleum profit tax compliance. However, the results indicate positive and significant relationships between penalty, tax knowledge, tax audits, tax complexity, environmental regulations and petroleum profit tax compliance. On the contrary, the result shows significant negative relationships between royalty rates and petroleum profit tax compliance. The study’s findings suggest that the royalty rate is important in further explaining the problem of petroleum profit tax compliance. Finally, the findings reveal that tax administration efficiency mediates the relationship between detection probability, tax knowledge, royalty rates, tax agents, environmental regulations, and petroleum profit tax compliance. However, it does not mediate the relationships between tax rates, penalty, tax complexity, tax audits, and petroleum profit tax compliance. The findings further suggest that policymakers should reconsider the newly introduced royalty rates to encourage petroleum profit tax compliance. By implication, this will enhance overall government revenue