Daniel Otera
On 26 June 2025, President Bola Ahmed Tinubu signed the Nigeria Tax Act (NTA) into law, introducing a 5% levy on petrol, diesel, and aviation fuel starting 1 January 2026. This measure, part of a broader tax reform package, aims to curb fossil fuel use, fund climate initiatives, and boost Nigeria’s tax-to-GDP ratio from 10% to 18% by 2026. However, with petrol prices already exceeding ₦900 per litre in many regions following the 2023 subsidy removal, the levy has ignited fierce debate. Nigerians, from motorists to business owners, fear it will deepen economic hardship, while the government insists it’s a step toward sustainability.
The NTA’s 5% fossil fuel surcharge, applied at the point of sale or supply, targets petrol, diesel, and aviation fuel, whether locally refined or imported. According to Naija247news, this translates to an additional ₦50 on every ₦1,000 spent on petrol, potentially adding ₦50 per litre based on current average prices of ₦1,000 per litre in urban centres like Lagos and Abuja.
In 2024, Nigeria’s petrol consumption amounted to approximately 18.75 billion litres, valued at ₦15.93 trillion, based on an average price of ₦850 per litre, as reported by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
In line with the government’s efforts to address climate change, the Federal Government has proposed a 5% surcharge on refined petroleum products, including petrol, starting January 1, 2026. This surcharge, set to be calculated based on the retail price of petrol, will generate significant revenue, with projections estimating around ₦796 billion annually from petrol alone. The revenue will be earmarked for funding climate change initiatives under the Climate Change Act 2021, supporting projects aimed at promoting clean energy and mitigating environmental impact.
While the surcharge is expected to have a substantial impact on revenue generation for climate projects, it is also likely to lead to an increase in fuel prices, with the surcharge adding ₦42.50 to the cost per litre of petrol. This revenue, generated from the 5% levy on petrol, is expected to play a crucial role in Nigeria’s climate adaptation and energy transition efforts.
Exemptions apply to cleaner energy sources like household kerosene, liquefied petroleum gas (LPG), compressed natural gas (CNG), and renewable energy products, aligning with Nigeria’s commitments under the Paris Agreement.
“This levy is designed to discourage fossil fuel dependence and fund solar, wind, and hydro projects,” said Zacch Adedeji, Executive Chairman of the Nigeria Revenue Service (NRS), during a press briefing on 26 June 2025. The government cites Sweden’s 1990s carbon tax, which reduced emissions by 25% over two decades, as a model for balancing environmental and fiscal goals.
Nigeria’s economic landscape in 2025 is marked by significant challenges, with rising inflation and increased poverty levels. According to the National Bureau of Statistics (NBS), the inflation rate for August 2025 stood at 32.15%, largely driven by the escalating costs of food and energy. This surge in inflation is a direct result of the removal of the fuel subsidy in 2023, which led to a dramatic rise in petrol prices from ₦185 to over ₦900 per litre. This policy shift has placed a heavy burden on both households and businesses across the country, further straining an already fragile economy.
Additionally, the World Bank’s 2023 report reveals that over 133 million Nigerians roughly 60% of the population are living below the poverty line. This staggering statistic reflects the compounded effects of inflation, fuel price hikes, and other economic pressures that have disproportionately affected the most vulnerable in society. Given these ongoing challenges, the outlook for economic recovery remains uncertain, and the poverty rate is likely to have worsened in the wake of recent developments.
The recent fuel levy is set to significantly impact Nigeria’s already strained petroleum-dependent economy. Over 80% of households and businesses in the country rely on petrol or diesel generators, a reliance born from the country’s unreliable electricity grid. According to a 2024 report by the International Energy Agency (IEA), the persistent energy shortfall has left citizens with little choice but to depend on these generators, further compounding the financial burden.
This levy will likely exacerbate the already high cost of living, particularly for transport and food. The Nigerian Association of Road Transport Owners (NARTO) has warned that a ₦50 per litre increase in fuel prices could raise transport fares by 10–15%. This increase in transportation costs is expected to have a direct impact on the prices of essential goods and services, especially food and other commodities, making them even less accessible to the average Nigerian.
With the country’s energy infrastructure struggling to meet demand, the consequences of this levy will likely ripple through multiple sectors, deepening the economic challenges faced by Nigerians already grappling with inflation and energy scarcity.
“Transport costs drive everything. This tax will hit the poor hardest,” said Yusuf Ibrahim, a Abuja-based bus driver.
The manufacturing sector, already struggling with high production costs, faces further pressure. The Manufacturers Association of Nigeria (MAN) reported that energy costs account for 40% of production expenses for most firms. In 2024, the sector’s real GDP growth was a modest 1.8%, down from 8.2% of total GDP, underscoring its vulnerability.
Small businesses, however, may find relief elsewhere in the NTA. Companies with annual turnovers below ₦100 million and fixed assets under ₦250 million are exempt from company income tax, capital gains tax, and a new 4% development levy, which consolidates previous taxes like the Tertiary Education Tax and Police Fund Levy.
“These exemptions shield small enterprises, but the fuel levy could negate those benefits for businesses reliant on transport,” said Arabinrin Aderonke, a tax expert, in an August 2025 interview with Pulse Nigeria.
Public reaction, particularly on X, reflects widespread frustration. A user, @NaijaCitizen23, posted on 28 August 2025: “Fuel is already too expensive, and now they’re adding another tax? This government doesn’t care about us.” Another user, @OGBlackRedGuard, warned on the same date: “This is completely unhinged and will destroy our economy.” These sentiments echo protests following the 2023 subsidy removal, which saw nationwide demonstrations and clashes in major cities.
The Nigeria Labour Congress (NLC) has been vocal in its opposition. “This policy risks pushing more people into hardship,” said NLC spokesperson Benson Upah in a statement on 4 September 2025. The NLC argues that without robust social safety nets, the levy could exacerbate inequality, particularly in rural areas where transport costs dominate household budgets.
The Nigeria Employers’ Consultative Association (NECA) offered cautious support for the reforms but stressed implementation. “The true test lies in how these laws are enforced,” said NECA Director-General Adewale-Smatt Oyerinde at the 4th Employers Summit in Abuja on 10 July 2025. He highlighted past issues with overzealous tax officials, a concern echoed by Chidinma, a Lagos small business owner: “I like that we won’t pay company income tax anymore, but I hope they don’t replace it with another levy we don’t understand”.
Energy experts view the recently introduced solar levy as a pivotal step in Nigeria’s renewable energy transition. The levy is expected to spur growth in the country’s solar sector, which has already shown significant progress. In 2024, Nigeria’s installed solar capacity reached 385.7 MWp, positioning it as the fourth-largest solar power producer in Africa. This growth is largely attributed to the rise of off-grid solar solutions, which cater to households and businesses that face unreliable electricity supply from the national grid.
The increasing adoption of solar energy solutions is a testament to the growing shift towards renewables in the country. As Nigeria continues to explore and implement sustainable energy solutions, this levy may play a crucial role in accelerating the transition towards a greener energy future.
“The 5% surcharge could push more people toward renewables,” said Chukwuma Okoye, an Abuja-based energy consultant. “But the government must subsidise solar panels and CNG conversion kits to make them viable alternatives.”
The Independent Petroleum Marketers Association of Nigeria (IPMAN) raised concerns about enforcement.
“We need clear guidelines to avoid harassment by tax officials,” said National President Chinedu Okonkwo in a September 2025 statement. The NRS, tasked with collecting the levy, requires monthly filings from fuel sellers, with penalties up to ₦10 million for non-compliance, raising fears of bureaucratic overreach.
The government frames the levy as a dual-purpose tool: funding climate adaptation and boosting revenue. PwC Nigeria estimates that the NTA’s reforms, including the fuel levy, could increase Nigeria’s tax-to-GDP ratio to 18% by 2026, aligning with regional peers like Ghana (16.5%) and Kenya (17.1%). However, economist Emmanuel Idenyi warns that “overzealous implementation could undermine the government’s good intentions.” He points to historical enforcement issues, where tax officials’ revenue targets led to arbitrary assessments.
The levy’s success hinges on transparent enforcement and investment in alternatives. Nigeria’s CNG adoption remains low, with only 7,000 vehicles converted by 2024, per the National Gas Expansion Programme. Scaling this requires infrastructure investment, which the levy’s revenue could fund if managed well. “This is about building a sustainable future while meeting fiscal needs,” said NRS Chairman Zacch Adedeji, citing plans for green jobs and climate adaptation projects.
As Nigeria prepares for the implementation of the fuel levy in January 2026, there is a growing anticipation among the public and policymakers regarding the potential economic implications. While the Nigerian Transport Authority (NTA) has announced exemptions for essential goods, such as food and healthcare, the broader impact of the levy is still uncertain. These measures are expected to alleviate some of the immediate burdens on households; however, the ripple effects of the fuel levy may counterbalance these gains, especially in sectors closely linked to transportation and energy.
According to the International Monetary Fund (IMF), inflation in Nigeria is projected to average 26% in 2025, which is expected to exacerbate the cost of living. This high inflation, coupled with rising poverty levels, presents significant challenges to the Nigerian government, as it strives to balance its climate goals with the urgent need for economic relief. The implementation of the fuel levy and the anticipated economic strain require careful consideration of both the short-term and long-term impacts on the population, particularly the most vulnerable.