Impact of Nigeria’s 5% Fuel Tax on E-Hailing and Logistics Sectors

The Nigerian government’s introduction of a 5% fuel tax, effective January 1, 2026, marks a pivotal shift in the country’s fiscal and energy policies. While framed as a revenue-generating measure to fund infrastructure and reduce fossil fuel dependency, the tax has sparked significant debate over its implications for transport-dependent sectors like e-hailing and logistics. For investors, the policy raises critical questions about risk exposure, operational resilience, and the potential for strategic reallocation in a market already grappling with inflation, currency depreciation, and infrastructure deficits.

Operational Cost Escalation and Immediate Risks

The 5% fuel surcharge adds approximately ₦45 per liter to petrol and diesel prices, translating to an extra ₦500 in taxes for every ₦10,000 spent on fuel [1]. For e-hailing platforms like Uber and Bolt, which rely heavily on petrol-powered fleets, this represents a direct hit to profit margins. According to a report by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), the average petrol price in 2024 was ₦850 per liter, with annual consumption at 18.75 billion liters. Applying the 5% tax could generate up to ₦796 billion annually for the government but would also increase fuel costs for transporters by an estimated 5.3% [1].

E-hailing drivers, represented by the Amalgamated Union of App-based Transporters of Nigeria (AUATON), have vocally opposed the tax, arguing that it exacerbates existing financial strains. With fuel already accounting for 40–60% of operational costs in a sector where margins are razor-thin, the tax threatens to force smaller operators out of business [1]. Similarly, logistics companies face compounding challenges: higher fuel costs intersect with port congestion, inadequate road networks, and security risks, all of which inflate delivery times and expenses [3].

Investment Shifts and Strategic Adaptations

In response to these pressures, companies are recalibrating their strategies. One immediate adaptation is fare adjustments. For example, e-hailing platforms may implement dynamic pricing models to offset rising costs, though this risks reducing demand elasticity in a market where affordability is a key driver of usage [4]. Logistics firms, meanwhile, are exploring route optimization technologies to minimize fuel consumption and improve delivery efficiency.

Longer-term, the tax could accelerate investments in alternative energy solutions. The Nigerian government has exempted clean energy products like compressed natural gas (CNG) and solar power from the surcharge, incentivizing adoption [1]. However, CNG infrastructure remains underdeveloped, with prices surging from ₦220 to ₦420 per liter after subsidy removal in 2025 [5]. This highlights a critical gap: while policy signals favor diversification, the lack of scalable alternatives limits immediate impact.

Investors are also pivoting toward infrastructure-linked opportunities. The government’s pledge to reinvest fuel tax revenue into transport infrastructure—such as road maintenance and rail expansion—could reduce logistics bottlenecks over time [2]. For instance, improved highways might lower delivery costs by 15–20%, according to a 2024 World Bank analysis of African transport corridors [6]. This creates a paradox: short-term pain for transporters may fund long-term gains for logistics players who can weather the transition.

Risk Mitigation and Sectoral Resilience

The e-hailing and logistics sectors are adopting layered risk mitigation strategies. For example, some companies are diversifying their vehicle fleets to include hybrid or electric models, though high upfront costs and limited charging infrastructure remain barriers [7]. Others are forming partnerships with fintech firms to offer fuel cost insurance or deferred payment schemes for drivers [8].

At the macro level, the Nigerian Revenue Service (NRS)—established to collect the tax—faces scrutiny over its capacity to enforce compliance without exacerbating administrative burdens. A 2025 PwC report on Nigeria’s tax reforms notes that fragmented enforcement could lead to revenue leakage, undermining infrastructure funding goals [2]. This introduces regulatory risk for investors, who must assess the government’s ability to balance fiscal discipline with economic stability.

Future Outlook and Investor Considerations

The 5% fuel tax underscores a broader tension in Nigeria’s economic strategy: using short-term fiscal measures to fund long-term structural reforms. For transport-dependent sectors, the immediate outlook remains challenging. However, the tax’s potential to catalyze infrastructure development and energy transition could create asymmetric opportunities for investors who prioritize resilience over short-term returns.

Key considerations for investors include:
1. Operational Flexibility: Companies with agile cost structures (e.g., dynamic pricing, hybrid fleets) are better positioned to absorb fuel shocks.
2. Policy Alignment: Firms leveraging government incentives for clean energy or infrastructure-linked projects may benefit from long-term tailwinds.
3. Market Diversification: E-hailing and logistics players expanding into rural or underserved markets could mitigate urban-centric cost pressures.

Conclusion

Nigeria’s 5% fuel tax is a double-edged sword for e-hailing and logistics sectors. While it heightens operational risks and squeezes margins in the short term, it also signals a policy shift toward infrastructure modernization and energy diversification. Investors must navigate this duality by prioritizing adaptive strategies, hedging against regulatory volatility, and capitalizing on long-term structural reforms. As the Tinubu administration’s fiscal agenda unfolds, the resilience of transport-dependent markets will hinge on their ability to balance immediate challenges with visionary adaptation.

Source:
[1] 5% fuel tax: Facts you need to know - Danco Group [https://dancogroup.com.ng/5-fuel-tax-facts-you-need-to-know/]
[2] Nigeria's Tax Reform 2025: Tax Insight Series and sectoral analysis [https://www.pwc.com/ng/en/publications/nigeria-tax-reform-2025.html]
[3] Unlocking Nigeria’s potential: experts’ opinion-based insights on the economic impact of logistics challenges [https://www.researchgate.net/publication/391297151_Unlocking_Nigeria's_potential_experts'_opinion-based_insights_on_the_economic_impact_of_logistics_challenges]
[4] From 'Hail' to 'Haul': A Strategic Guide to Launching Your E Hailing Startup in Nigeria [https://metalexlegal.com/publication/article/from-hail-to-haul-a-strategic-guide-to-launching-your-e-hailing-startup-in-nigeria.150]
[5] The Nigerian government has recently removed the subsidy on compressed natural gas (CNG), causing prices to surge from N220 to N420 [https://www.facebook.com/groups/1048083815220416/posts/25169263362675791/]
[6] Nigeria Transportation Analytics Market | 2019-2030 [https://www.kenresearch.com/nigeria-transportation-analytics-market]
[7] The potential of EV battery-swapping in developing countries [https://www.sciencedirect.com/science/article/pii/S2590198225001848]
[8] Breaking Down Nigeria's 2025 Tax Overhaul [https://www.linkedin.com/pulse/breaking-down-nigerias-2025-tax-overhaul-ayomide-alabi-zdkff]