Confused Economics, Fuel Taxes Without a Transition Plan

Umar I. A. Ibrahim Thursday, September 04, 2025
A glimpse of the fuel prices Nigerians wish were real.

Op-ed: 001 on Streaming Naija.

By [Umar I. A. Ibrahim]

When President Bola Ahmed Tinubu removed the petrol subsidy in May 2023, he reset Nigeria’s economy. Overnight, trillions of naira that used to vanish into subsidy payments began flowing into government coffers. FAAC allocations jumped to record highs of ₦1.8 trillion shared in June 2025 alone. On paper, it looked like a masterstroke.

But fast-forward to the Federal Government’s latest move to add 5% fossil fuel surcharge on petrol, diesel, and aviation fuel can't help but raises more questions than it answers.

The New Tax: Who Pays, and Who’s Exempted?

Under the 2025 tax reforms, starting January 2026, a 5% levy will apply to fossil fuel products sold in Nigeria. The official idea? Discourage dirty fuel consumption locally and push citizens towards cleaner energy.

Exempted from this surcharge are cooking gas (LPG), household kerosene, compressed natural gas (CNG), and renewable energy products.

On paper, this sounds like a green policy. But in reality, it looks like another burden placed squarely on ordinary Nigerians who depend on petrol and diesel to live, move, and work on a daily basis.

CNG Confusion

Here’s where it gets even messier. CNG is tax-exempt, supposedly to encourage Nigerians to switch. Yet, in August 2025, prices of CNG spiked from ₦420 to ₦450 per standard cubic meter.

Some reports blamed this on a quiet removal of government subsidy. But the Presidential CNG Initiative (PCNGI) swiftly denied it, insisting the government had never imposed or withdrawn a subsidy on CNG. Instead, they blamed “private investors and infrastructure gaps” for the sudden hike.

So which is it? Nigerians are left with conflicting stories, and worse, rising costs in what should have been the affordable alternative to petrol.

The Missing Link in the Transition Strategy

Economists call taxes like this Pigouvian taxes , which are levies meant to nudge citizens toward better behavior. In theory, making fossil fuels more expensive should encourage cleaner choices.

But here’s the flaw: unless government recycles that revenue into targeted support, such as cheaper public transport, mass transit buses, solar mini-grids, or subsidies for conversion kits, the tax becomes just another regressive levy. It punishes the poor more than the rich, with no real path to transition.

Why tax fuel, claim to favor CNG, then let CNG prices skyrocket with no clear intervention? Why not use part of the trillions saved from subsidy removal to actively subsidize green power? 

That’s how economies like India and South Africa handle transitions, by funding the bridge, not just the toll.

What Nigerians Deserve

Nigerians are not opposed to reform. People understand subsidy was unsustainable. What they cannot accept is policy confusion: taxing in one breath, exempting in the next, then denying responsibility when “exempted” and fuels suddenly become unaffordable.

The government owes citizens clarity, honesty, and a roadmap. If the goal is a cleaner environment, the policy must go beyond taxation. It must invest in alternatives, reliable, accessible, and cheap enough to replace petrol.

Until then, this new tax feels less like an environmental push, and more like another cash grab in the name of reform.

✅ Facts on What’s true (and what isn’t)

1) “Tinubu removed PMS subsidy.” True.
President Tinubu announced the end of petrol (PMS) subsidy on May 29, 2023. Since then, money shared by FAAC jumped to record levels e.g., ₦1.818 trillion for June 2025 per the Accountant-General’s office. NEITI also reports FAAC disbursements surged in 2024 after subsidy removal. oagf.gov. ngneiti.gov.ng

2) “…generated trillions in new revenues.”  Largely true.
Official communiqués show repeated ₦1.6 to ₦1.8 trillion monthly FAAC payouts in mid-2025. The Presidency also touts big gains in non-oil revenue in 2025 (government claim; still useful context). Channels Television TheCable Businessday NG Arise News

3) “New 5% regressive fossil fuel tax on PMS, aviation fuel and diesel.” Mostly true, with timing and scope nuance.
Nigeria’s 2025 tax reforms created a 5% surcharge on “chargeable fossil fuel products provided or produced in Nigeria.” Exemptions include household kerosene, LPG (cooking gas), CNG, and clean/renewables. Implementation is slated from January 2026, with details to be set by regulations from the Finance Ministry/Nigeria Revenue Service. Analysts and press describe it as a de-facto carbon price at POS. (Whether aviation turbine fuel is explicitly covered will hinge on the final “chargeable products” list, but diesel and petrol are squarely in scope.) EY KPMG Assets+1 Semafor allAfrica.com Punch 

4) “Exemptions include renewables, kerosene, cooking gas, and CNG.” True.
The Acts and multiple explainers list exactly those exemptions. EY KPMG Assets

5) “FG removed the subsidy on CNG.” — Disputed right now.
Several reports say CNG price spiked to about ₦420–₦450/SCM and attribute it to “subsidy withdrawal.” But the Presidential CNG Initiative (PCNGI) has publicly denied any government price hike or subsidy removal, blaming private investors/retailers and market bottlenecks. In short, prices are up; whether that’s due to an official “subsidy removal” is contested as of Sept 4, 2025. Punch+1 Vigil360 Legit.ng - Nigeria news. The Nation Newspaper Tribune Online allAfrica.com 

The economics in plain language

  • A fuel surcharge like this is a Pigouvian tax idea: make fossil fuels a bit pricier to push usage down and nudge people toward cleaner options. That’s the logic. Punch
  • Critique: it can be regressive (hurts lower-income households proportionally more) unless you recycle the revenue—e.g., fund targeted transport support, mass transit, grid upgrades, clean cooking, or offsets for small businesses and commuters. (NG law doesn’t earmark the 5% to green uses; it simply creates the surcharge and exemptions.) KPMG Assets Punch
  • On CNG: policy signals are mixed. The law exempts CNG from the 5% surcharge (a pro-CNG signal), yet market prices rose and outlets cite “subsidy cuts.” PCNGI says no government-set hike—which implies supply, infrastructure, or private pricing issues are driving the spike. Until there’s an official pricing framework or audit, expect confusion. KPMG Assets Punch+1

Key source links (facts & documents)

The Bottom line is:

  • Yes, subsidy went; yes, revenues rose.
  • Yes, a 5% fossil fuel surcharge is now law, exempting CNG/LPG/kerosene/renewables, with implementation from Jan 2026 (pending regs).
  • CNG: prices did rise, but cause is disputed today: “prices rose; government denies subsidy removal; retailers cite costs, investment, and other variables.”
  • If the goal is cleaner air, the stronger case is to earmark some of the post-subsidy revenue (and even the 5%) for green transitions: mass transit, conversion grants, charging/solar mini-grids, cleaner cooking, and targeted rebates so the policy isn’t just a tax, but a transition plan. (That’s the missing piece people feel on the ground.)

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Umar I. A. Ibrahim

Umar I. A. Ibrahim

Umar I. A. Ibrahim is the visionary Founder and CEO of Streaming Naija (SN), a premier digital marketing agency renowned for driving exceptional lead generation and growth for businesses. A graduate in Geophysics, Ibrahim seamlessly blends his scientific acumen with his expertise in marketing to deliver innovative solutions in the digital space. As a researcher, writer, and AI enthusiast, Ibrahim is deeply passionate about exploring and sharing advancements in artificial intelligence and business SaaS tools. His insightful content focuses on equipping businesses and individuals with strategies for financial growth, productivity, and lifestyle enhancement. With a strong commitment to empowering others, Ibrahim creates impactful articles that span news, entertainment, technology, and entrepreneurship, offering actionable tips and profitable opportunities. Whether through his leadership at Streaming Naija or his thought-provoking writings, Umar I. A. Ibrahim continues to inspire and drive success for businesses and individuals alike. For more insights and updates, connect with him on LinkedIn: https://www.linkedin.com/in/ibrahim-umar-791aa6324/

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