FG Imposes 2–4% Levy on High-Engine Vehicles from July 1

Nigeria is set to introduce a new “Green Tax” surcharge on high-engine capacity vehicles starting July 1, 2026. Disclosed in a government circular, this fiscal measure is part of President Bola Ahmed Tinubu’s 2026 fiscal policy package, aimed at aligning the nation’s tax system with global environmental goals while diversifying internal revenue.

The policy introduces a tiered levy system based on engine displacement, specifically targeting luxury and high-consumption internal combustion engines while shielding mass transit and eco-friendly alternatives.

The Levy Structure: Who Pays?

The surcharge is calculated as a percentage of the vehicle’s value, with the rate increasing alongside engine size. The government has clearly defined the thresholds to ensure that smaller, everyday vehicles are not affected.

• 2% Surcharge: Applies to vehicles with engine capacities between 2,000cc (2.0L) and 3,999cc.

• 4% Surcharge: Applies to high-performance and luxury vehicles with engines of 4,000cc and above.

• Exemptions: To protect the middle class and promote a green transition, the following categories are exempt:

  • Vehicles with engines below 2,000cc.

  • Electric Vehicles (EVs).

  • Mass transit buses.

  • Locally manufactured vehicles, aimed at boosting the Nigerian automotive industry.

The 90-Day Transition

To prevent immediate market shocks, the Federal Government has granted a 90-day grace period. This window allows importers, car dealers, and manufacturers to adjust their pricing models and clear existing inventory before the full implementation kicks in on July 1.

The policy also marks Nigeria’s full adoption of the ECOWAS Common External Tariff (CET), further harmonizing the country’s trade rules with its West African neighbors.

A Broader Fiscal Overhaul

The Green Tax is not an isolated measure but a component of a massive restructuring of Nigeria’s revenue system. It follows the four major tax reform laws signed in June 2025, which transformed the Federal Inland Revenue Service into the Nigeria Revenue Service (NRS).

Key context for this move includes:

• Reducing Oil Dependency: By taxing consumption and carbon footprints, the government aims to create a more stable revenue base that isn’t tied to the volatile price of crude oil.

• Consistency in Policy: This structured approach follows the 2023 suspension of arbitrary excise duties, signaling a shift toward more predictable, “structured” taxation as opposed to the ad-hoc levies of the past.

• Incentivizing Local Production: By exempting locally made cars, the FG is effectively using the tax code as an industrial policy to attract assembly plants to Nigeria.