Nigeria weighs excess profit tax on energy operators over price gouging

Nigeria’s plan to consider an excess profit tax on energy operators comes as disruptions linked to the Iran war boost earnings at major oil companies globally, raising questions about how the government can capture exceptional gains without discouraging investment in the country’s energy sector.

The Presidency announced the measure on October 8 as part of a wider response to rising fuel prices, saying proceeds from taxes imposed on operators taking undue advantage of consumers would fund transport support or vouchers for urban minimum-wage earners. The government has yet to publish a tax rate, a definition of excess profits, or an estimate of the revenue the measure could generate.

The proposal reflects a wider debate over whether energy companies should pay additional taxes when geopolitical shocks drive prices and profits sharply higher. The European Commission is considering a bloc-wide windfall tax on oil and gas companies following renewed calls for support for households facing higher energy costs. The EU introduced a temporary solidarity contribution during the 2022 energy crisis.

Major producers have also reported strong earnings during the latest price shock. ExxonMobil recorded $14.5 billion in second-quarter earnings, more than double its profit a year earlier, while Chevron reported about $12.1 billion.

Opeyemi Ajetunmobi, head of advisory and research at Edgeplus Capital, in a LinkedIn post examining the surge in global oil company earnings, said windfall profits generated by supply disruptions could attract political pressure and eventually trigger additional taxation.

“Windfall profits during supply disruption have a documented political shelf life,” he wrote, citing the UK’s Energy Profits Levy, introduced in 2022, and the European Union’s windfall tax on energy firms that same year.

He argued that the precedent was relevant to Nigeria’s energy sector, where higher global oil prices could increase earnings for upstream producers and strengthen pressure on the government to capture a share of exceptional gains.

Some Nigerian producers have recorded substantial profit increases. Aradel Holdings Plc reported a first-half 2026 pre-tax profit of N752.7 billion, while Seplat Energy Plc’s pre-tax profit rose 74.1 percent to N790.4 billion. Their combined pre-tax profit reached about N1.54 trillion.

However, these results do not establish how much of the increase represents a taxable windfall. Aradel’s earnings partly reflect its expanded production and asset base following its acquisition of interests in ND Western and Renaissance Africa Energy. Seplat’s results are also affected by operational performance and its dollar-linked earnings. A tax based simply on year-on-year profit growth could therefore capture gains that did not arise solely from higher oil prices.

Yvonne Afolabi, a tax and finance professional, said a price-triggered tax could use a benchmark oil price based on historical averages, adjusted for inflation and market conditions. Only additional profits attributable to prices above that benchmark would be considered, after accounting for eligible operating costs, investment expenditure and a reasonable return on capital.

She also said the government should model revenue using company- and field-level data under different oil-price scenarios, taking account of existing taxes, production-sharing arrangements and the possibility that an additional levy could affect future investment.

Nigeria has a domestic precedent for taxing windfall gains. The Finance Act amendment passed in 2024 introduced a 70 percent levy on realised profits from banks’ foreign-exchange transactions during the 2023–2025 financial years, following gains associated with the naira’s exchange-rate reforms. The measure shows that windfall taxation is not new to the country, although foreign-exchange gains differ from oil profits in how they arise and are measured.

The proposed energy tax would also have to account for existing petroleum taxes. Upstream producers may already pay hydrocarbon tax, company income tax, and other applicable levies. The government would need to clarify how a new charge would interact with these obligations and prevent the same economic gains from being taxed in ways that undermine investment incentives.

The distinction between windfall profits and price gouging is equally important. Windfall taxation targets exceptional earnings, often triggered by external price shocks, while price gouging concerns whether businesses are exploiting consumers through excessive pricing. Preliminary comparisons of downstream depot prices and import-parity costs have not established clear evidence of unusually high margins across the supply chain.

The Presidency has said the tax would be considered, rather than announced an approved framework. Before it can deliver meaningful transport support, the government must establish which operators would be liable, how excess profits would be calculated and whether the likely proceeds would justify the cost of administering the levy and the potential effect on investment.