Understanding Nigeria’s 5% fuel tax and its implications
The newly introduced 5% fuel tax has become one of the most debated policies among Nigerians in recent days, with many questioning its origin, scope, and likely impact on households and businesses.
Formally described as a “surcharge on fossil fuel products,” the levy is a central element of the Nigeria Tax Act 2025 and related legislation, signed into law by President Bola Tinubu on June 26, 2025. It will officially take effect on January 1, 2026.
According to the government, the policy is aimed at reducing reliance on fossil fuels, encouraging the adoption of cleaner energy alternatives, and generating additional revenue for the state.
The move comes against the backdrop of ongoing economic strain following the 2023 fuel subsidy removal, which has pushed petrol prices to about N900–N1,000 per litre in many parts of the country.
Scope and Implementation
The tax applies to all chargeable fossil fuel products produced or supplied in Nigeria, including petrol, diesel, and aviation fuel. Exemptions cover household kerosene, liquefied petroleum gas (LPG), compressed natural gas (CNG), and renewable energy sources such as solar, wind, and hydropower.
Collection will be overseen monthly by the newly established Nigeria Revenue Service (NRS), which replaced the Federal Inland Revenue Service.
The Finance Minister is empowered to issue regulations and gazette orders guiding enforcement, while fuel marketers are required to upgrade compliance systems, including e-invoicing for VAT-related documentation.
Revenue and Allocation
Data from the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) shows that in 2024, the country consumed about 18.75 billion litres of petrol at an average price of N850 per litre, translating to a market value of N15.93 trillion.
A 5% surcharge on this volume alone could yield roughly N796 billion annually, with additional revenue expected from diesel and other petroleum products.
The government has earmarked proceeds for climate change mitigation, renewable energy expansion, and sustainable development projects, in line with Nigeria’s commitments under international climate agreements.
Impact on Nigerians
For consumers, the tax will mean paying an extra N500 for every N10,000 worth of petrol purchased.
In practical terms, analysts predict it could raise pump prices by at least N50 per litre, further affecting transport costs, food prices, and general inflation.
Transport operators, small-scale businesses reliant on generators, and low-income households are expected to feel the brunt of the new levy. Critics, including civil society groups such as ActionAid Nigeria, argue the policy is regressive as it applies uniformly, regardless of income levels, thereby worsening inequality.
Oil marketers, under the Independent Petroleum Marketers Association of Nigeria (IPMAN), have also warned that the surcharge will directly reflect in pump prices, intensifying economic pressures on consumers.
Government’s Argument
Despite opposition, policymakers defend the tax as a necessary reform to discourage fossil fuel dependence while accelerating the adoption of renewable energy. Nigeria’s solar power capacity rose to 385.7 MWp in 2024—ranking fourth in Africa—driven largely by higher fuel costs and growing interest in alternatives.
Officials also point to international precedents such as Sweden’s carbon tax of the 1990s, arguing that embedding environmental levies within broader fiscal reforms ensures sustainability while aligning with global climate goals.
