Nigeria’s oil industry, long the bedrock of national revenue, faces a transformed tax landscape. On June 26, 2025, President Bola Ahmed Tinubu signed four sweeping tax reform laws aimed at modernizing the country’s fiscal framework, improving compliance, and increasing revenue. While the reforms shield low-income earners and small businesses, their implications for the oil sector, especially upstream and downstream revenues, are profound and immediate.
The new legislation includes:
- Nigeria Tax Act (NTA)
- Nigeria Tax Administration Act (NTAA)
- Nigeria Revenue Service Act (NRSA)
- Joint Revenue Board Act (JRBA)
Together, these laws overhaul tax collection and allocation, introduce new levies, adjust tax rates, and close long-standing loopholes. The government hopes to raise Nigeria’s tax-to-GDP ratio from 10% to at least 18% by 2026. But what does this mean for oil revenues?
Higher Capital Gains, Development Levy Hit Upstream Hard
The most immediate impact on oil and gas comes from the tripling of Capital Gains Tax (CGT) from 10% to 30% for companies. This aligns CGT with the Companies Income Tax (CIT) rate, eliminating the tax arbitrage that allowed firms to disguise trading profits as capital gains.
Given the frequency of asset transfers, joint ventures, and offshore holding structures in the oil sector, this change is significant. The law now taxes indirect transfers of oil assets through offshore intermediaries—a common structure among international oil companies (IOCs). Unless exempted by tax treaties, such offshore disposals will now trigger Nigerian tax obligations.
The reforms also introduce a Development Levy of 4% on assessable profits, replacing a patchwork of previous levies—Tertiary Education Tax, IT Levy, NASENI Levy, and Police Trust Fund. Unlike older levies, this new rate applies to profits before deducting tax depreciation and losses, effectively increasing the tax base and burden for oil majors and large independents.
VAT Reforms Bring Mixed Impact for Downstream Players
The Value Added Tax (VAT) rate holds steady at 7.5%, but its structure and enforcement have changed. While essential services like public transport, electricity, and basic goods are now zero-rated, refined petroleum products are not exempt. Marketers must continue collecting and remitting VAT on petrol, diesel, lubricants, and aviation fuel.
However, downstream firms can now recover input VAT on services and capital goods—something previously restricted. This change allows depot operators, logistics firms, and marketers to reclaim VAT on infrastructure upgrades, technology, and supply chain investments. In theory, this should improve margins and encourage reinvestment.
Yet, the mandatory VAT fiscalisation and e-invoicing rules increase compliance pressure, especially for smaller, informal marketers who lack digital systems. Failure to comply could attract stiff penalties, reducing profit margins for operators in the grey market.
Free Zones, Marginal Fields Retain Limited Carveouts
While the laws tighten tax rules, certain exemptions remain. Free Zone operators exporting petroleum products are excluded from the new 15% minimum effective tax rate, provided they are not part of multinational groups. This exemption benefits operators like Dangote Refinery and others in the Lekki Free Trade Zone.
However, multinational oil firms with global group revenues above €750 million must comply with global minimum tax standards. If their Nigerian subsidiaries pay below the 15% threshold, they must pay a top-up tax to meet it. This provision could affect legacy tax benefits under Joint Ventures and Production Sharing Contracts (PSCs)—raising Nigeria’s share of oil tax revenues but also risking investment flight.
Federation Revenue, NNPCL, and the Reform Dividend
The Federal Government expects these laws to significantly boost non-oil revenues, yet they also promise increased oil-linked revenue through better enforcement and reduced evasion.
In May 2025, the Nigerian National Petroleum Company Limited (NNPCL) posted ₦6 trillion in revenue and ₦1.05 trillion in profit, buoyed by improved production and sales. With the new CGT enforcement and offshore share disposal taxes, the government could extract more revenue from NNPCL’s ongoing asset restructuring, such as Joint Venture divestments and upstream asset swaps.
However, analysts warn that the stricter tax regime may deter foreign investment, especially as capital shifts to renewables and low-carbon energy. Still, with more modular refineries and Dangote’s ramp-up, VAT recovery could boost downstream profitability, making domestic refining more attractive.
A New Fiscal Era for Petroleum
The 2025 tax reforms mark a turning point in Nigeria’s oil taxation. Gone are the days of fragmented levies and arbitrary exemptions. In their place, the country now has a more structured, transparent, and enforceable tax regime.
For the oil industry, this means tighter compliance, higher tax liabilities, and reduced loopholes. Yet the reforms also offer predictability, input recovery, and investment incentives, particularly for downstream and infrastructure-heavy operations.
If effectively implemented, these laws could expand Nigeria’s oil revenue base, strengthen public finances, and create a more level fiscal playing field, without undermining competitiveness.
