SOME months ago, the National Assembly passed the Nigeria Tax Bill to law. This new law rewrote and combined most of Nigeria’s existing federal tax laws like Income Tax, the VAT, Capital Gains Tax, etc. We wrote about it in this newsletter.
Recently, there have been controversial conversations on the media regarding a provision of the new Tax Act, that requires people to pay taxes for buying fuel.
We’re referring to Chapter 7, Sections 159 and 160 of the Act, which provide for the imposition of a 5% surcharge on “chargeable fossil fuel products” such as Petrol, Diesel, etc. The law is clear however, under section 162, that this does not apply to household kerosene, liquefied petroleum gas, compressed natural gas and renewable energy sources (such as solar, wind, biomass, etc).
What Exactly Does This Surcharge Mean?
A surcharge in tax language, simply means an extra charge added on top of the normal price of something. In this case, the surcharge means that whenever you buy items like petrol, diesel or aviation fuel, you will pay an additional 5% of the price as a levy.
For example, if you buy petrol worth NGN 10,000, the surcharge would be an extra NGN 500, making a total payment of NGN 10,500. If you buy diesel of NGN 20,000, the surcharge is an additional NGN 1,000, making NGN 21,000.
The levy collected is remitted to the government, specifically into the Road Maintenance and Infrastructure Funding.
Here’s What You Should Know…
The surcharge is not necessarily a creation of the new tax laws, it had been provided for under the Federal Road Maintenance Agency Act (FERMA Act) since 2007. However, it had not been implemented.
The Nigeria Tax Act attempts to breathe life into this law by reintroducing it, however, it provides that the law would only take effect when the Minister of Finance issues an order for its commencement. So essentially, it’s still a dormant law and it’s not in force yet.
However, there hasn’t been much positive public response to the new law, and for obvious reasons. The removal of fuel subsidy did a number on the purchasing power of most Nigerians. Now, the chances that the new surcharge would deepen inflation are very high, because a hike in the price of fuel affects everything from the cost of logistics, down to the prices of goods and services in the market.
Some others have criticized the surcharge because there isn’t enough legal framework for its implementation. For instance, there’s no certainty that the levies would in fact be used for the development and maintenance of roads.
