Understanding the Fossil Fuel Surcharge Regime Under the Nigeria Tax Act 2025. The Nigeria Tax Act (NTA) 2025 introduces a significant new fiscal measure aimed at balancing environmental sustainability with revenue mobilisation: the 5% Fossil Fuel Surcharge. Codified in Sections 159 to 162, this surcharge forms part of Nigeria’s broader shift toward cleaner energy sources and environmentally responsible taxation.
This article provides a comprehensive analysis of the legislative provisions, their implications, and what businesses must do to remain compliant.
Introduction to the Fossil Fuel Surcharge
The introduction of a fossil fuel surcharge marks a strategic policy shift by the Federal Government to:
- Discourage excessive consumption of fossil fuel products
- Promote renewable and cleaner energy
- Generate additional revenue through environmentally linked taxation
- Align Nigeria with global sustainability trends and carbon-reduction commitments
- Unlike VAT or corporate income tax, the fossil fuel surcharge is a distinct fiscal charge that applies specifically to fossil fuel products produced or provided within Nigeria.
Legal Basis for the Surcharge (Section 159)
Section 159 provides the foundation for the new regime. It imposes a 5% surcharge on all chargeable fossil fuel products produced or supplied in Nigeria.
This means that every transaction involving a fossil fuel product classified as chargeable will attract the surcharge, without regard to whether the product is manufactured locally or distributed within the domestic market.
The surcharge is collected at the point of transaction, making it a consumption-based levy similar in structure to VAT but with a clear environmental focus.
What Constitutes a Chargeable Transaction? (Section 160)
Section 160 establishes the events that trigger surcharge liability. The surcharge becomes due at the point of the earliest of the following:
- Supply
- Sale
- Payment
This “earliest event rule” closes potential loopholes by ensuring that businesses cannot defer or avoid surcharge payment through delayed invoicing or payment arrangements.
Basis of Calculation
Under Section 160(2), the surcharge is computed on the retail price of the fossil fuel product. The use of retail price rather than wholesale or cost price ensures:
- Uniform application across the value chain
- Revenue accuracy
- Transparency in pricing and compliance
- This approach also ensures that as fossil fuel prices rise, the surcharge increases proportionally.
Commencement and Administrative Framework (Section 161)
For enforcement purposes, the Act delegates commencement authority to the Minister of Finance, who must issue an Official Gazette notice specifying the effective date for implementation. Until such notice is issued, the surcharge remains dormant.
- Administration by Nigeria Revenue Service
- The Nigeria Revenue Service (NRS) is responsible for:
- Administering the surcharge
- Collecting it monthly
- Issuing guidelines, compliance rules, filing procedures, and penalties
- Given the importance of real-time monitoring in fossil fuel transactions, it is expected that NRS will deploy digital tools, similar to other fiscalisation systems introduced under NTA 2025 and the Nigeria Tax Administration Act (NTAA) 2025.
Exemptions from the Surcharge (Section 162)
To protect vulnerable households and encourage energy transition, Section 162 outlines key exemptions. The surcharge does not apply to:
- Clean or renewable energy products
- Solar
- Wind
- Hydropower
- Geothermal
- Biomass energy
- Household kerosene
- Cooking gas (LPG)
- Compressed natural gas (CNG)
- Policy Rationale for Exemptions
- Support for Low-Income Households: Kerosene remains a critical household energy source in many rural and urban poor communities.
- Promotion of Cleaner Fuel Alternatives: LPG and CNG are central to the national agenda for reducing reliance on petrol and diesel.
- Encouragement of Renewable Energy: Exempting renewables supports private sector investment in solar, biomass, hydro, and other clean energy industries.
- Alignment with Global Climate Goals: The exemptions align Nigeria with international best practices on environmental taxation.
Implications for Businesses and Consumers
a. For Businesses
Businesses dealing in chargeable fossil fuel products—such as petrol, diesel, fuel oil, kerosene (non-household grades), and other petroleum derivatives—must:
- Adjust pricing structures to incorporate the surcharge
- Update accounting systems to capture surcharge liabilities
- File and remit the surcharge monthly to NRS
- Retain adequate documentation for audit and verification
- Monitor regulatory updates from NRS
- Failure to comply may expose businesses to penalties under the NTAA 2025.
b. For Consumers
- Retail fuel prices may rise slightly due to the surcharge.
- Consumers may be encouraged to shift to LPG, CNG, and renewable energy alternatives.
- Commercial users of diesel (e.g., manufacturers, logistics operators) may experience increased operating costs.
c. For Government
- Provides a new revenue stream dedicated to sustainability initiatives.
- Reduces the carbon footprint of Nigeria’s energy consumption.
- Supports national migration toward alternative energy solutions.
Compliance Considerations for Companies
In preparation for implementation, impacted businesses should consider the following:
- Identify Chargeable Fuel Products: Determine which products fall within the surcharge scope.
- Review Pricing Mechanisms: Ensure surcharge is factored into retail pricing.
- Implement System Changes: Upgrade billing systems to capture the surcharge at the earliest of supply, sale, or payment.
- Establish Surcharge Accounts: Create internal processes for accruing and remitting surcharge liabilities.
- Monitor for Gazette Notice: Compliance begins only after the Minister issues the commencement order.
- Engage with NRS Guidelines: Adopt any additional compliance or fiscalisation rules issued by NRS.
Conclusion
The Fossil Fuel Surcharge regime under the Nigeria Tax Act 2025 represents a bold and strategic policy instrument. By imposing a 5% levy on fossil fuel products—while exempting household fuels and renewable alternatives—the Nigerian government seeks to encourage responsible energy consumption, stimulate clean energy adoption, and generate revenue to support environmental priorities.
Businesses operating in the production, importation, distribution, or retail of fossil fuel products must prepare for compliance by understanding the scope, computation rules, exemptions, and administrative processes. The success of this regime will depend on effective implementation, clear regulatory guidance, and proactive readiness by stakeholders across the energy value chain.
Olatunji Abdulrazaq CNA,ACTI,ACIArb(UK)
Founder/CEO,Taxmobile.Online
