How new tax laws would curb revenue leakages in the oil and gas sector

Tuesday, January 6, 2026 - An oil and gas expert, Ken Ife, has said that the country’s newly implemented Tax Act would curb revenue leakages in the oil and gas sector.

Mr Ife, an energy development economist, said the tax would also free regulatory agencies to concentrate on oversight, performance monitoring and enforcement. He spoke in an interview with journalists on Sunday in Lagos, as the Nigeria Tax Act 2025 officially took effect on January 1, 2026.

The tax laws signed into law in June 2025, represents one of the most sweeping fiscal reforms in Nigeria’s petroleum industry in decades.

Mr Ife said the new law consolidates legacy statutes such as the Petroleum Profits Tax Act (PPTA) and fully integrates the Petroleum Industry Act (PIA) 2021 into a single, unified tax code.

According to him, the Act repeals much of the fragmented tax regime, replacing it with a streamlined fiscal framework designed to improve transparency, efficiency and investor confidence. “For the oil and gas industry, upstream companies will still face a split tax structure,” Mr Ife explained.

“This consists of Hydrocarbon Tax (HT) on profits from crude oil production and Companies Income Tax (CIT) on general corporate profits.” He said the hydrocarbon tax remains between 15 and 30 per cent, depending on licence type, while the standard CIT for large companies is set at 30 per cent, with a planned reduction to 25 per cent in subsequent years.

“The drop from 30 to 25 per cent CIT is very encouraging to prospective investors and improves retained earnings for existing operators,” he said.

Mr Ife identified the introduction of a 15 per cent Minimum Effective Tax Rate (ETR) as one of the most consequential changes for International Oil Companies (IOCs) and large indigenous firms.

“This aligns Nigeria with the OECD’s ‘Pillar Two’ framework where a company’s effective tax rate falls below 15 per cent due to incentives or deductions, a top-up tax will apply to meet the threshold.”

“This effectively blocks tax leakage and guarantees a minimum contribution from multinational groups,” he said. He also highlighted the introduction of a consolidated 4 per cent Development Levy on assessable profits, replacing several smaller levies, including the Tertiary Education Tax, NITDA Levy, NASENI Levy and the Police Trust Fund Levy.

“The positive aspect is that this 4 per cent levy applies only to profits subject to CIT and not to profits calculated for Hydrocarbon Tax purposes, offering some relief for core upstream operations,” he said.

On energy transition measures, Mr Ife noted that a five per cent surcharge has been introduced on fossil fuel products such as petrol and diesel at the point of sale, in line with global practice. “This policy is currently facing resistance, and effective implementation of a 15 per cent ad-valorem tax on imported fuel may delay its full rollout,” he said.

He added that clean energy products, including Compressed Natural Gas (CNG), Liquefied Petroleum Gas (LPG or cooking gas) and household kerosene, are exempt from the surcharge. Warning of potential downstream implications, he said: “The current competitive environment that has driven pump prices down to about N739 per litre could be reversed if the government pushes through the 5 per cent tax at the pump.”

Addressing long-standing concerns over high production costs, Mr Ife said the reform introduces the Upstream Petroleum Operations (Cost Efficiency Incentives) Order 2025. He said that under the scheme, companies that reduce operating costs below regulatory benchmarks can claim tax credits, allowing them to retain up to 50 per cent of the savings achieved.

He added that the Act reinforces Nigeria’s gas strategy through new Gas Tax Credits (GTC) and Gas Tax Allowances (GTA) for greenfield non-associated gas developments, positioning gas as a transition fuel.

On administration, Mr Ife noted that the newly established Nigeria Revenue Service (NRS) now has the exclusive mandate to collect all petroleum-related taxes and royalties.

“This simplifies the interface for companies that previously dealt with multiple agencies such as the NUPRC and FIRS. More importantly, it reduces revenue leakages and allows regulatory agencies to focus squarely on regulation, monitoring, performance and enforcement,” he added.