Abuja, Nigeria – The federal government has announced the introduction of a 5% tax on all fossil fuel sales starting January 2026, under its new tax reform law.

The levy, signed into law by President Bola Ahmed Tinubu, will apply to fossil fuel products produced or sold in Nigeria, including petrol and diesel. However, the tax will not cover clean energy products such as compressed natural gas (CNG), liquefied petroleum gas (cooking gas), household kerosene, and other renewable energy sources.

How the 5% Fossil Fuel Tax Works

According to the new regulation, the surcharge will be collected at the point of sale, similar to a consumption tax. Officials explained that the measure aims to place a direct price on fossil fuel consumption while encouraging Nigerians to switch to cleaner and more sustainable energy alternatives.

Experts say the levy functions much like a carbon tax, though it is structured as a percentage rather than a flat fee. Globally, carbon taxes are designed both to discourage fossil fuel use and to raise revenue for government programs — a system often described as a “double dividend.”

Why Nigeria Is Introducing the Levy

Nigeria, Africa’s largest oil producer, has struggled for decades with over-reliance on fossil fuels. The new measure comes two years after Tinubu’s administration removed fuel subsidies in May 2023, which led to pump prices rising from an average of ₦195 per litre to ₦800–₦900 per litre today.

Officials say funds from the new tax will be channelled into:

  • Implementing the Climate Change Act (2021)

  • Financing the National Climate Change Council Secretariat

  • Supporting adaptation projects, clean energy technology, and green job creation

Concerns About Impact on Nigerians

Energy and financial analysts have raised concerns that the policy could worsen hardship, given Nigeria’s high poverty levels and reliance on petrol generators for electricity.

Energy policy expert Adeola Yusuf argued that:

“Nigerians are not ready for these kinds of taxes due to widespread poverty and income inequality. The government should have introduced the surcharge gradually — first in urban areas, then nationwide — to reduce hardship.”

Similarly, financial analyst Osas Igho warned that the levy would stoke inflation as transporters raise fares, pushing up the cost of goods and services.

Revenue Expectations

The government insists that revenue from the tax will strengthen Nigeria’s green transition and reduce carbon emissions. Officials compare the reform to Sweden’s successful 1990s carbon tax model, which combined environmental goals with fiscal sustainability.

Reports also show a growing shift toward renewables: Nigeria added 63.5MWp of solar capacity in 2024, reaching a total of 385.7MWp, as households sought cheaper alternatives.

Background: Old Law Resurfaces

This is not the first time Nigeria has attempted a 5% fuel surcharge. The FERMA Act (2007) also required a similar levy on petroleum products to fund road maintenance, though implementation was inconsistent.

With the new tax law, however, the government says it is determined to enforce the charge strictly and link it directly to climate action and clean energy funding.