Urban News

The Nigerian government’s planned 5% tax on petrol and diesel, slated to start in January 2026 under the Harmonized Tax Act, will significantly impact fuel prices and consumption. 

Tax Calculation and Collection

The 5% surcharge will be calculated on the retail price of fuel and imposed at the time of a chargeable transaction, such as supply, sale, or payment.

The Federal Inland Revenue Service (FIRS), to be renamed the Nigeria Revenue Service, will collect this monthly. It is authorized to issue regulations for administration.

Although collected by marketers, consumers will ultimately pay the tax, increasing pump prices. In a ₦900 per litre price instance, they would pay an additional ₦45 to ₦945. 

The effective date depends on an order from the Minister of Finance. The government intends the tax to discourage fossil fuel use and encourage cleaner energy. Revenue is meant for transport infrastructure and reducing logistics costs, aiming to lower inflation. This is also part of boosting non-oil revenue. 

The surcharge applies to petrol, diesel, and aviation fuel. Household kerosene, cooking gas, and Compressed Natural Gas (CNG), as well as clean or renewable energy products, are exempt. 

Besides the new 5% fuel tax, other taxes in Nigeria can affect fuel costs, though their direct application at the pump varies. These include Value Added Tax (VAT) at 7.5%, Custom and Excise Duties, and various business taxes paid by companies in the petroleum supply chain.

The new 5% tax will directly raise consumer prices at the pump, adding to the cost after subsidy removal

Oppositions on the 5% Tax on Fuel

A 5% tax on petrol and diesel, introduced under the Harmonized Tax Act, is facing increasing opposition.

There are flaws in energy transition strategy as critics question the assumption that the tax will significantly reduce fossil fuel consumption. The lack of readily available and affordable renewable energy alternatives like CNG if further highlighted by the these concerns.

The price of CNG has already risen significantly.

There is concern that the Act does not explicitly detail how the generated revenue will be used, sparking fears of potential misuse. Some suggest a revenue-neutral approach, where tax proceeds are returned to citizens through cuts or rebates, as seen in other countries. 

Opposition is mounting as the 5% tax is slated to take effect in January 2026 under the new Harmonized Tax Act.