FG Introduces New Fossil Fuel Tax, Nigerians to Pay at Point of Purchase
- The Nigerian government will begin the implementation of a 5% tax on fossil fuels in January 2026
- The new levy aims to discourage fossil fuel consumption while shifting attention and demand towards cleaner energy sources
- The new surcharge will be deducted at the point of purchase, which Nigerians have said will drive up inflation
Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment and the economy for over a decade.
The Nigerian government will impose a 5% tax on all fossil fuel sales beginning January 2026 under its new tax law.
According to the law, Nigerians must pay a 5% surcharge on fossil fuel products provided or produced in Nigeria.
Source: Twitter
How fossil fuel levy works
The regulation said that the fee shall be collected at the time of a changeable transaction, which is at the point of sale.
However, the surcharge exempts clean or renewable energy, household kerosene, cooking gas, and compressed natural gas.
The new directive places a direct price on fossil fuel consumption and aims to shift demand to cleaner energy sources.
Global parallels
Experts say it functions like a carbon tax, but framed as a percentage rather than a fixed cost.
They disclosed that globally, carbon taxes discourage fossil fuel use while raising government revenue, which is seen as a double dividend on carbon pricing.
Analysts say the Nigerian government deserves credit for embedding the levy in broader tax reforms, like Sweden’s 1990s carbon tax model
According to reports, Nigeria’s 5% surcharge represents a strong move to break from its dependence on fossil fuels.
How will fuel levy impact Nigeria’s revenue?
If done effectively, the policy could reduce growth from emissions, boost Nigeria’s climate commitments, and mobilise funds for sustainable development.
The development comes two years after the government of President Bola Tinubu removed subsidies on petroleum products.
Alongside the subsidy removal, higher electricity tariffs, and accelerated renewable energy adoption have been the new mantra of the present government.
Reports reveal that Nigeria’s solar capacity rose in 2024, pushing the country to fourth place in Africa, adding 63.5MWp and reaching 385.7MWp in total capacity as households seek cheaper energy sources.
Impact on Nigerians
Energy policy analysts have said a flat rate of 5% disregards inequality in the country, where millions and SMEs rely on petrol generators.
They advocated that a progressive surcharge based on income and consumption levels would have been a better approach to protect vulnerable citizens.
“Nigerians are not ripe or ready for these kinds of taxes or levies due to widespread poverty and income inequality,” Adeola Yusuf, an energy policy analyst, said.
“What the government should have done is a gradual introduction of the surcharge, first in urban areas and then spread across the country. This way they can gauge responses and acceptance and reduce hardship,” he said.
Osas Igho, a financial analyst, decried the potential impact of the new levy on Nigerians, goods and services.
“This will stoke inflation because motorists will hike fares, which will have ripple effects in the wider economy,” he said.
Revenue expectations from fuel tax
The government expects that revenue from the surcharge would support the implementation of the Climate Change Act 2021, fund the National Climate Change Council Secretariat, or finance the adaptation projects, clean energy technology and green jobs.
Source: Getty Images
For several decades, Nigeria has relied on fossil fuels.
The 5% surcharge may be the external force that could push Nigeria toward a sustainable path, experts say.
FG moves to add 5% fuel charge to petrol, diesel
Legit.ng earlier reported that Nigerians, including rights advocates and civil society organisations, opposed the proposed implementation of the five per cent users’ charge on petrol and diesel prices.
The House of Representatives Ad Hoc Committee probing the non-remittance of the five per cent user charge on petroleum products to the Federal Roads Maintenance Agency (FERMA) called for the charge’s implementation as enshrined in the FERMA Act 2007
The Act states that 5% of the pump price of petrol and diesel purchased by Nigerians will be added to road maintenance, with 40% remitted to the agency and 60% to state road maintenance agencies.
Proofreading by Kola Muhammed, copy editor at Legit.ng.
Source: Legit.ng
