By Yunus Yusuf
Lagos, Jan. 4, 2026 — The Nigeria Tax Act (NTA) 2025, which officially took effect on January 1, represents the most significant fiscal overhaul of the country’s petroleum industry in decades. According to Energy Development Economist, Prof. Ken Ife, the legislation is strategically designed to curb massive revenue leakages that have long plagued the sector, potentially recovering billions in lost government income.
In an exclusive interview, Prof. Ife explained that the Act’s primary achievement is the consolidation of Nigeria’s fragmented petroleum tax regime. “The NTA 2025 repeals legacy statutes like the Petroleum Profits Tax Act (PPTA) and fully integrates the Petroleum Industry Act (PIA) 2021 into a single, unified code,” he stated. “This creates a streamlined fiscal framework that improves transparency, reduces administrative complexity, and ultimately boosts investor confidence by providing predictable rules.”
Key Structural Changes and Their Impact
For upstream oil companies, the tax structure remains a dual system but with critical refinements:
- Hydrocarbon Tax (HT): Applied at 15-30% on profits from crude oil production, varying by license type (e.g., Petroleum Prospecting Licenses vs. Mining Leases).
- Companies Income Tax (CIT): Set at 30% for large companies, with a planned reduction to 25% in coming years. “This planned reduction is a direct incentive,” Ife noted. “It improves retained earnings for existing operators and is very encouraging to prospective investors weighing long-term commitments.”
The Game-Changer: Minimum Effective Tax Rate (ETR)
Prof. Ife identified the introduction of a 15% Minimum Effective Tax Rate as one of the Act’s most consequential provisions. This aligns Nigeria with the OECD’s global “Pillar Two” framework aimed at stopping corporate tax base erosion.
“Here’s how it works as a leakage plug,” Ife elaborated. “If an International Oil Company (IOC) or a large indigenous firm uses various incentives, deductions, or transfer pricing to reduce its effective tax rate below 15%, a ‘top-up’ tax will automatically apply to meet that threshold. This guarantees a minimum contribution from multinational groups and closes a major loophole that has cost Nigeria significant revenue.”
Streamlining Levies and Incentivizing Efficiency
The Act replaces multiple, smaller levies—including those for Tertiary Education, NITDA, NASENI, and the Police Trust Fund—with a consolidated 4% Development Levy on profits subject to CIT. “The positive nuance,” Ife highlighted, “is that this levy does not apply to profits calculated for Hydrocarbon Tax purposes, offering some fiscal relief for core upstream operations.”
To tackle Nigeria’s notoriously high production costs, the reform introduces the Upstream Petroleum Operations (Cost Efficiency Incentives) Order 2025. “This is a performance-based mechanism,” Ife explained. “Companies that reduce their operating costs below regulatory benchmarks can claim tax credits, allowing them to retain up to 50% of the savings achieved. It directly incentivizes operational efficiency, which improves project economics and government take.”
Energy Transition and Downstream Implications
The Act introduces a 5% surcharge on fossil fuel products like petrol and diesel at point of sale, mirroring global carbon taxation practices. However, Ife warned of implementation challenges and consumer impact. “This policy is facing resistance. The current competitive environment that drove pump prices down to about ₦739 per litre could be reversed if the government pushes through this tax.” He noted that clean energy alternatives like CNG, LPG, and kerosene are exempt, reinforcing gas as a transition fuel through new Gas Tax Credits and Allowances.
The Centralization of Revenue Collection
A critical administrative change is the exclusive mandate given to the newly established Nigeria Revenue Service (NRS) to collect all petroleum-related taxes and royalties. “This is a major step against leakage,” Ife emphasized. “It simplifies the interface for companies that previously navigated a maze of agencies like the NUPRC and FIRS. More importantly, it consolidates collection into one accountable body, reducing avenues for diversion. It also allows technical regulators to focus purely on oversight, monitoring, and enforcement, rather than revenue collection.”
In conclusion, Prof. Ife’s analysis suggests the NTA 2025 is not merely a tax change but a comprehensive fiscal governance tool. By plugging specific leakages (like the Minimum ETR), incentivizing desired behaviors (cost efficiency, gas development), and streamlining administration, the Act aims to transform Nigeria’s oil and gas sector from a revenue-bleeding giant into a more efficient, transparent, and competitive engine for national development. Its success will hinge on consistent implementation and the government’s ability to balance revenue generation with investor appeal.
(Source: News Agency of Nigeria)
