Oil has driven Nigeria’s economy since it was first struck here. The industry powers growth, draws investment and funds the state.
The numbers make the point. Petroleum-related taxes generated ₦3.69 trillion in the first half of 2025 alone, a 41.7% rise on the same period in 2024.
The Nigeria Tax Act 2025 now consolidates the fiscal rules for petroleum into one statute. It builds on the Petroleum Industry Act 2021 and adds new policy and compliance obligations.
How taxation of oil and gas companies is structured
The Act keeps the dual regime from the PIA and preserves legacy rules for assets that never converted. Three regimes therefore run side by side.
- Hydrocarbon Tax. It applies to crude oil operations under new or converted petroleum prospecting licences and petroleum mining leases.
- Companies Income Tax. It applies alongside Hydrocarbon Tax for those same converted licences, and does not reach unconverted ones.
- Petroleum Profits Tax. It continues for pre-PIA oil prospecting licences and oil mining leases, under either the standard regime or the special deep offshore and frontier basin regime.
Hydrocarbon Tax targets upstream profits from crude oil, field condensates and natural gas liquids from associated gas produced upstream of the measurement points. It does not touch associated or non-associated gas, nor condensates and liquids from non-associated gas, nor those produced downstream of the measurement points. Companies Income Tax covers those instead.
The rates under section 72 depend on the instrument. Profits from crude oil under onshore and shallow water mining leases attract 30%. Profits under onshore and shallow water prospecting licences attract 15%.
Legacy assets keep their old rates. Petroleum Profits Tax stays at 85% of chargeable profits, with a reduced 65.75% available for up to five years where pre-production capital expenditure is not fully amortised. Deep offshore production sharing contracts sit at a flat 50%.
Key changes operators should note
Hydrocarbon Tax reaches deep offshore. Section 260(3) of the PIA had exempted both frontier acreages and deep offshore. Section 65(4) of the new Act keeps the frontier exemption but removes the deep offshore carve-out. Deep offshore projects previously paid only Companies Income Tax and royalties, so this broadens the base and raises the cost of those projects.
The 1% capital allowance residue effectively goes. Under the old rules, 1% of an asset’s initial cost stayed on the books and could only be written off on disposal, which needed a Certificate of Disposal. The Act still records that 1% for statistical purposes, yet treats it as notional. It neither increases nor reduces the allowance claimable, so operators can now claim capital allowances in full across an asset’s useful life.
Abandonment funds must be partly local. At least 30% of a decommissioning and abandonment fund must sit with a Nigerian bank to qualify for tax deductibility. The bank must be accredited under criteria the Central Bank of Nigeria sets.
Royalties must be paid in cash. The PIA had allowed cash or kind at the Commission’s discretion. That option has gone, so companies need cash flow planned around royalty obligations.
The Nigeria Revenue Service now collects royalties. That function previously sat with the Nigerian Upstream Petroleum Regulatory Commission.
Unpaid tax can cost a licence. Under section 63 of the Administration Act, where a company ignores a formal demand, the Service may notify the regulator, and that notification can trigger revocation of the licence or lease.
New levies and rates
A 5% fossil fuel surcharge. It applies at the first point of sale, supply or payment, whichever comes first. Clean and renewable energy products are exempt, as are household kerosene, cooking gas and compressed natural gas. The Minister of Finance sets the commencement date by Order in the Official Gazette.
A 15% minimum effective tax rate. Where a company’s effective rate falls below 15%, it must recompute and pay the shortfall. This catches companies with aggregate turnover of ₦50 billion and above, among others. Free zone enterprises are outside it, except on sales into the customs territory or where they belong to a qualifying multinational group.
A 4% development levy. It applies to assessable profits and replaces the Tertiary Education tax, the NITDA levy, the Police Trust Fund levy and the NASENI levy. Small companies are excluded.
One relief also appears. The President may, on the advice of the National Economic Council, issue an Order cutting the corporate rate for non-small companies from 30% to 25%.
VAT and gas incentives
The Act keeps the VAT exemption for oil and gas exports, and for crude petroleum oil and feed gas for all processed gas. It also defers or suspends VAT on certain supplies, including services for converting and installing compressed natural gas and liquefied petroleum gas systems.
Gas development gains statutory footing. Incentives for non-associated gas greenfield developments onshore and in shallow water, first introduced by Order in 2024, now sit in the Act itself.
Compliance and penalties
Filing deadlines are firm. All companies must file income tax returns within six months after their accounting year ends, and midstream liquefied natural gas companies must file estimated returns.
The penalties are steep. Failing to file estimated or annual returns attracts ₦10,000,000 on the first day, then ₦2,000,000 for each additional day. Late payment of tax, royalty or remittance in upstream operations adds 10% of the amount due, plus interest, plus ₦10 million on the first day and ₦2 million for each further day.
What operators should do
Deep offshore operators face the largest recalculation, so modelling the Hydrocarbon Tax exposure should come first. Every operator should also review abandonment fund arrangements, royalty cash flow and effective tax rate position before the rules bite.
Our Oil and Gas 2025 Wrap-Up and 2026 Outlook covers the sector more broadly, and the Nigeria Revenue Service publishes administration guidance.
For the full edition of our Deconstructing the Tax Reform Acts Series, download the newsletter using the button below.
