Nigeria Tax Act 2025: Gas Incentives, Environmental Funds, and Fiscal Stability Explained

Nigeria Tax Act 2025: Gas Incentives, Environmental Funds, and Fiscal Stability Explained

The Nigeria Tax Act, 2025 continues its detailed framework for petroleum taxation, building on prior sections to focus on gas production, decommissioning and abandonment funds, and fiscal stabilization. Together, these provisions define how Nigeria taxes crude oil and natural gas operations, while promoting investment, ensuring environmental accountability, and maintaining a fair and transparent fiscal system.

1. Strengthening Fair Tax Assessment for Petroleum Companies

Section 84 establishes a mechanism to prevent underpayment of taxes by petroleum companies. It provides that if, in any accounting period, a company’s income tax liability is found to be less than what should have been charged, the company must pay an additional chargeable tax equal to the difference.

This ensures that tax obligations are fully met and prevents companies from exploiting loopholes through miscalculation or transfer pricing.

To determine taxable value, the Act uses the fiscal oil or gas price per barrel (or per MMBtu) — as set by the Petroleum Commission. The Commission bases this on export parity, ensuring that every producer operates on fair and consistent benchmarks. Where no fiscal price has been established for a particular stream of crude or gas, the Commission must set one using comparable Nigerian or international prices, considering quality, gravity, and freight adjustments.

The guiding principle here is simple — tax must reflect real market value, not artificially lowered prices.

2. Incentives for Non-Associated Gas (NAG) Development Projects

Section 85 introduces a Gas Production Incentive Regime to encourage new investment in Non-Associated Gas (NAG) Greenfield developments, especially in onshore and shallow-water terrains.

These incentives apply to projects that begin first commercial gas production between the commencement of the Act and January 1, 2029. Eligible companies receive Gas Production Tax Credits (GPTCs) or Gas Production Allowances (GPAs) depending on the ratio of hydrocarbon liquids to gas in their production.

  • When hydrocarbon liquids are below 30 barrels per million standard cubic feet, the credit is US$1.00 per thousand cubic feet or 30% of the fiscal gas price, whichever is lower.

  • For hydrocarbon liquids between 30 and 100 barrels, the rate drops to US$0.50 per thousand cubic feet or 30% of the fiscal gas price.

  • Once liquids exceed 100 barrels per million cubic feet, incentives no longer apply.

The gas tax credit is valid for 10 years from the date of first gas production. After this period, companies can still claim gas production allowances but no longer enjoy new tax credits for that field. For projects starting after January 1, 2029, only the lower $0.50 allowance applies — encouraging early investment in Nigeria’s gas sector.

Additionally, unrecouped tax credits can be carried forward for up to three years, giving flexibility to companies that experience slow initial production phases.

3. Accountability in Valuation and Force Majeure Relief

The fiscal gas price used for all computations must match that used for determining royalties, ensuring consistent valuation across the sector. The Act also introduces safeguards for operators facing force majeure events — such as natural disasters, terrorism, or instability.

In such cases, the Petroleum Commission may suspend the timelines for claiming incentives until normal operations resume. The Commission must also certify hydrocarbon liquid ratios for each gas field to verify qualification for incentives.

Importantly, companies cannot double-dip — no firm can claim both Gas Framework Agreement benefits and these new Greenfield gas incentives for the same project. This rule ensures fiscal integrity and responsible use of incentives.

4. Regulating Decommissioning and Abandonment Funds

Section 86 introduces strict requirements for how companies manage decommissioning and abandonment funds — the reserves set aside for environmental cleanup, site restoration, and well plugging after petroleum operations end.

The Act makes these contributions non-deductible for tax purposes unless two key conditions are satisfied:

  1. At least 30% of the total fund must be deposited into an escrow account with a Nigerian bank.

  2. The bank must be accredited by the Central Bank of Nigeria (CBN) and recognized by the relevant petroleum authority.

This ensures that funds meant for environmental protection are secured locally, transparently managed, and accessible to regulators. It’s a deliberate move to align Nigeria’s oil and gas governance with global standards on sustainability and post-operation responsibility.

5. Linking Old and New Licensing Regimes under the Petroleum Industry Act (PIA)

Section 87 bridges the Nigeria Tax Act, 2025 with the Petroleum Industry Act (PIA). It clarifies that these provisions do not apply to holders of older oil prospecting or mining licenses unless they convert to the new PIA framework.

However, indigenous companies operating under older licenses remain taxable under income tax laws until conversion. This provision prevents any tax-free gaps during the transition between the old and new legal regimes.

The federal government also retains authority to revise fiscal terms — including royalty rates, profit-sharing formulas, or bid parameters — during future licensing rounds. This flexibility ensures Nigeria continues to receive fair market value for its petroleum resources.

6. Redefining Fiscal Stabilization Clauses

Section 88 addresses Fiscal Stabilization Clauses (FSCs) — contractual terms that “freeze” a company’s tax conditions for the duration of its production agreement. The Act now renders such clauses inapplicable to the fiscal provisions of this new law.

In other words, oil and gas companies cannot claim immunity from future tax changes by citing older contracts. However, the Act maintains fairness by mandating that any tax revisions or policy adjustments must not be discriminatory.

If fiscal terms are changed — whether beneficial or adverse — they must apply equally to all companies operating under similar conditions. This protects Nigeria’s fiscal sovereignty while maintaining a level playing field for all investors.

Conclusion: Balancing Incentives with Accountability

The Nigeria Tax Act, 2025 represents a decisive step toward a more transparent, responsible, and balanced petroleum tax system. By encouraging gas investments through well-defined incentives, enforcing strict rules on fund management, and eliminating loopholes in fiscal contracts, Nigeria strengthens both investor confidence and public accountability.

For petroleum and gas companies, this Act demands deeper financial discipline and strategic compliance. For regulators, it ensures better oversight and consistency in valuation, reporting, and environmental responsibility.

At Baha’s Books, we help organizations interpret, plan, and comply with these complex fiscal frameworks — offering tailored accounting, compliance, and advisory solutions that keep your business compliant and competitive in Nigeria’s evolving tax landscape.

💼 Stay compliant. Stay competitive.
Visit bahasbooks.com for expert insights, tools, and advisory support for your business.

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