What you should know as green tax takes effect

The controversial green tax introduced by the federal government has taken effect amidst criticism by stakeholders and Nigerians over the inflationary effect of the new tax.

It would be recalled that the government in April 2026 introduced the new green tax surcharge on high-engine vehicles, with a levy of between 2 per cent and 4 per cent as part of its 2026 fiscal policy measures.

Daily Trust reports that the green tax featured prominently in the 2026 fiscal policy measures (FPM), which also included significant tariff reductions. This decision, which supersedes the 2023 FPM, aims to stimulate growth in key sectors, according to the federal government.

Key changes include: Crude palm oil: Duty reduced to 28.75% (from 35%); Passenger vehicles: Duty reduced to 40% (from 70%); Rice: Duty reduced to 47.5% (from 70%)

Also, importers with Form ‘M’ opened before April 1, 2026, are granted a 90-day grace period. However, new excise duties and green tax surcharges will take effect from July 1, 2026.

The policy also introduces exemptions for electric vehicles and locally manufactured cars from the green tax surcharge.

With the policy, Nigeria has joined a growing list of countries adopting fiscal measures aimed at reducing environmental pollution and encouraging sustainable business practices.

With the implementation of the new Green Tax, the country is signaling a shift toward aligning economic activities with environmental protection, even as businesses and consumers weigh the likely impact on production costs and household spending.

The Green Tax, often described as an environmental levy, is designed to place a financial cost on activities, products or materials that contribute significantly to pollution and climate change. Rather than serving as just another source of government revenue, proponents argue that the tax is intended to change behaviour by making environmentally harmful practices more expensive while encouraging cleaner alternatives.

According to the federal government, the green tax is part of a wider strategy to reform fiscal policies and introduce environmentally conscious taxation.

What is a Green Tax?

A Green Tax, also known as an environmental tax or eco-tax, is imposed on activities that have adverse effects on the environment. Such taxes are commonly targeted at carbon emissions, plastic packaging, fossil fuels, waste generation and other environmentally damaging products.

The underlying principle is straightforward: those whose activities create environmental costs should bear part of the financial responsibility for addressing them.

Governments around the world have increasingly embraced environmental taxation as a policy tool to reduce pollution, encourage innovation in cleaner technologies and generate funds for environmental restoration projects.

Why Nigeria is introducing it?

The decision by the federal government to introduce the taxation is to align with international obligation and following the step already taken by other countries.

In Africa, South Africa led with its carbon tax. Ghana also implemented the Emission Levy, Kenya is also doing so with the proposal on carbon-based vehicle taxation.

In Europe, 38 OECD (Organisation for Economic Co-operation and Development) have all introduced the green tax.

The federal government explained that the green tax is part of a wider strategy to reform fiscal policies and introduce environmentally conscious taxation.

“Vehicles with engine sizes of 2,000cc (2-liter) to N3,999cc at a rate of 2% while vehicles with engines of 4,000cc and above will face a 4% charge, according to the government.

“Vehicles with engines below 2,000cc will be exempt, as well as mass transit buses, electric vehicles and locally manufactured vehicles.

Who will be affected?

In line with the federal government’s fiscal policy measures revealed in April 2026, the implementation of the green tax starts with imported vehicles.

Despite the push towards electric vehicles, Nigeria is still heavily dependent on internal combustion engine (ICE) vehicles.

However with the takeoff of the green tax, the federal government has slashed the import levy on imported new and used vehicles by half in order to cushion the impact of the new green tax surcharge.

According to the Nigeria Customs Service (NCS), import levies on brand new vehicles will be reduced from 20 per cent to 10 per cent while import levies on used vehicles or Tokunbo will be reduced from 15 per cent to five per cent.

However, stakeholders are worried that the measure may worsen inflation and increase the cost of vehicles given that there are several other charges already on the imported vehicles.

The Association of Nigerian Licensed Customs Agents (ANLCA) called for an immediate suspension of the policy, citing inadequate stakeholder consultation and insufficient notice before implementation.

In a statement signed by its National President, Emenike Nwokeoji, ANLCA described the inclusion of cargo already in transit as a retrospective fiscal burden that could expose importers and customs agents to significant financial losses.

The association also raised concerns over the absence of clear guidelines for determining engine capacities for tax assessment, warning that the ambiguity could lead to inconsistent implementation and disputes during cargo clearance.

ANLCA urged the Federal Government to postpone the rollout, publish detailed implementation guidelines and provide a transition period to enable businesses to adjust to the new regime.

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