The prices of petrol and diesel may experience a sharp rise when the federal government begins the implementation of the 2025 Nigeria Tax Administration Act.

This is due to the provision of a five percent surcharge from refined petroleum products in a bid to promote the use of clean energy.

The five per cent surcharge on refined petroleum products is contained in the Nigeria Tax Administration Act, one of four tax reform bills signed into law by President Bola Tinubu on June 26, 2025 with implementation slated for January 2026.

The policy targets fossil fuel products provided or produced in Nigeria.

Daily Trust reports that Fossil fuel products include petrol, diesel, kerosene, aviation fuel, and Compressed Natural Gas, among others. They are derived from the processing of fossil fuels such as coal, petroleum, and natural gas.

However, items exempted from the new tax are clean or renewable energy products, as well as household kerosene, cooking gas, and Compressed Natural Gas.

An analysis by our correspondent, using the volume of imported and refined petrol, showed that the government could earn N796bn based on the 2024 estimates of national consumption and refining capacity production data provided by the Nigerian Midstream and Downstream Petroleum Regulatory Authority.

This N796bn is purely for petrol and doesn?t include other fossil fuel derivatives such as diesel and aviation fuel.

A breakdown of data from the NMDPRA shows that the total volume of petrol consumed by Nigerians reached 18.75 billion litres in 2024. NMDPRA, an agency of the Federal Government, is the mid- and downstream regulator of the oil and gas industry.

The 18.75 billion litres of petrol translates to about N15.93tn, using the average price of N850 for a litre of petrol consumed in Nigeria during the review period. Five per cent of N15.93tn represents N796bn, which is the sum that the Federal Government may rake in annually from only petrol once it implements the planned surcharge.

This, therefore, implies that the government?s earnings from the proposed surcharge on fossil fuel products (petrol, diesel, and aviation fuel) would be more than N796bn once the five per cent surcharge policy on refined petroleum products takes effect, after being approved by the Minister of Finance, as stated in the Act.

What the new tax law says?

According to the law, the surcharge will be imposed on all ?chargeable fossil fuel products? and will be calculated based on the retail price of the product. The Act stipulates that the surcharge will apply to a ?chargeable transaction? such as the supply, sale, or payment for the product, ?whichever occurs first?.

The law read in part, ?A surcharge is imposed at five per cent on chargeable fossil fuel products provided or produced in Nigeria, and shall be collected at the time a chargeable transaction occurs.

?(1) For the purpose of imposing a surcharge on fossil fuel products, the chargeable transaction shall be the supply, sale, or payment, whichever occurs first. (2) Surcharge shall be computed based on the retail price of all chargeable fossil fuel products.?

The implementation date, however, remains undecided and is now subject to the approval of the Minister of Finance and Coordinating Minister of the Economy, Wale Edun. ?The minister may, by an Order issued in the Official Gazette, indicate the effective date of commencement of the administration of the surcharge on fossil fuel products under this Chapter,? the Act said.

?The Service shall administer and collect the surcharge every month and may issue regulations for its administration,? a section of the Act reads. A surcharge is an additional fee or tax added to the price of a good or service beyond the base price.

The law tasks the Federal Inland Revenue Service, which will be renamed the Nigeria Revenue Service by 2026, with administering and collecting the surcharge every month. It also empowers the agency to issue further regulations for effective implementation.

It further stated, ?The surcharge under this Chapter shall not apply to the following fossil fuel products: (a) clean or renewable energy products; (b) household kerosene; (c) cooking gas; and (d) Compressed Natural Gas.

?(2) For the purpose of this section, ?clean or renewable energy? means energy from solar, wind, hydropower, geothermal, or plant and animal waste, which are naturally replenishing, produce little or no environmental pollution or greenhouse gas emissions, and do not deplete over time.?

The Nigeria Tax Act is one of four tax laws signed into law by President Tinubu to overhaul the country?s tax framework. The others include the Joint Revenue Board (Establishment) Law, the Nigeria Revenue Service (Establishment) Act, and the Nigeria Tax Administration Act.

The laws are aimed at enhancing revenue collection efficiency, promoting fiscal transparency, and supporting the implementation of Nigeria?s medium-term revenue strategy.

With rising government borrowing and growing fiscal pressures, the surcharge is expected to form part of new efforts to boost non-oil revenue, though its real impact will depend largely on how and when it is implemented.

Burden of high cost of petrol products

Already Nigerians are reeling under heavy burden of rising fuel price since the removal of subsidy from PMS in 2023 with a litre sold around N900 to N1000.

Already, other petrol products like diesel, kerosene and aviation fuel are less subsidised and subject to market forces.

Consumers will pay the 5% ? Marketers

National President of Petroleum Products Retail Outlet Owners Association of Nigeria (PETROAN), Billy Gillis-Harry, said the introduction of the charge is very sudden to the industry.

He disclosed that when the issue was first discussed in 2007, it was dropped as the conditions were never favourable.

He recalled that then the amount of 5% was just about N2 to N3 but today?s 5% of N850 per litre is quite high.

He said, ?That size of money is not what the industry can accommodate now. The sales benefit and profit margin that we enjoy is less than 3% and you are buying for N850 and then selling for N920. So, what is your profit when you take off operational margins, overheads and different things? So where is the 5% going to come from? It is targeted at the consumer.

?The consumer will certainly be the final person to pay the 5%. So, whether we like it or not, that will be increasing the fuel price. I don?t think that industry players will be able to accommodate that because we have to pay first before the end user pays us. So, with the kind of price fluctuation that we have seen in the last few months, is it possible that we could be able to sell off a particular consignment before prices are changed more than four times in the week or in the month? So, the impact will be very harsh on Nigeria. That?s why we are not giving it the support that other countries should have been giving.?

On whether the tax is a way to reduce the use of fossil fuel, he said there shouldn?t be any specific way that government should encourage or discourage introduction of CNG.

He said CNG can only be introduced as effectively as possible if the government makes an opportunity to fund the primary costs of conversion kits and also the establishment of daughter and mother stations across the country which PETROAN is willing to present herself as a very strong partner.

?We have retail outlets that are strategically placed across the country and will require the government to give us the necessary financial support that is required. So, I don?t think there should be any backdoor way to encourage the use of CNG or other sorts of energy, other than facing it frontally and providing some sort of finance to cushion the establishment of CNG.?

Tax will put more burden on Nigerians

Speaking with Daily Trust, Prof. Dayo Ayoade, Energy Law expert at the University of Lagos, said it is clear that taxes add to the cost of an item, adding that the higher the tax, the more the consumers would pay.

He added that already, Nigerians are suffering under a particularly poor economic situation right now and this could be a problem for the majority of Nigerians who are actually quite poor.

?Now is it good to have a tax on petroleum products? In theory, it?s good to have tax on petroleum products because it?s very easy to collect and those taxes would benefit the Nigerian state. But the problem is to have the same tax on locally produced and imported petroleum products. ?If you want to encourage local production, then taxes should not be put on locally produced goods and also if you want to discourage petroleum product imports, which we seem to want by starting up our own refineries and Dangote and other new refineries coming up, then it means that we should have a higher surcharge on the imports of petroleum products.?

He however decried what he called official corruption and the likely manipulation of data by staff of regulatory agencies to record imported fuel for locally produced one.

?For instance, if you have say 5% tax on local production and 10% tax on imported production, you can have officials who would now pretend and recertify imported products as local,? he added. (Daily Trust, but headline rejigged)

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