By Bassey Udo
The Federal government says discussions are ongoing to review the cost of collection structure for revenue-generating agencies in the country.
A statement from the Federal Ministry of Finance which gave a clarification on the issue at the weekend said the government was not contemplating to discontinue the practice where revenue-generating agencies were allowed to retain certain percentages of their total revenue generation usually remitted to the Federation Account.
The retained revenue is captured as cost of collection in the computation of the revenue allocation by the Federation Accounts Allocation Committee (FAAC).
Agencies’ percentage take
Under the existing arrangement, revenue-generating agencies such as the Federal Inland Revenue Service (FIRS), the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), and the Nigeria Customs Service (NCS) are permitted to deduct their cost of collection at source before remitting the balance to the Federation Account for distribution to the three tiers of government.
The FIRS is allowed to retain 4 percent costs of collection of all non-oil taxes collected as revenue on behalf of the Federal Government, while the Nigeria Customs Service (NCS) takes 7 percent of all customs levies and duties, and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) 4 percent of all oil and gas royalties, signature bonus, fines and other revenues from the petroleum industry.
Rising cost pressures
However, in recent times, the Federal Government has frowned at the spiralling cost of collection by these agencies which appears to have eaten into the aggregate revenue available for distribution to the three tiers of government every month.
In the communiqué issued at the end of the FAAC meeting for October 2025 in Abuja, it was noted that almost one third of the total inflows as revenues to the Federation Accounts was being withheld by the revenue collecting agencies as costs of collection, transfers, interventions, and refunds.
Analysts say increasing deductions for cost of collection and administration by different revenue agencies, particularly Value Added Tax (VAT) and Electronic Money Transfer Levy (EMTL), could undermine government’s fiscal planning at both federal and subnational levels.
Gross half year deduction
With a whooping gross deduction of about N658 billion as cost of collection from the Federation Account revenue of N17.418 trillion between January and June 2025, the Economic Management Team was directed to review all deductions and revenue retention practices by the revenue-generating agencies, namely the FIRS, NCS, NUPRC, Nigerian National Petroleum Company Limited (NNPC) and Nigerian Maritime Administration and Safety Agency (NIMASA).
Specifically, the government wants the EMT to reassess NNPC’s 30 percent management fee and 30 percent frontier exploration deduction under the Petroleum Industry Act (PIA).
No stop order yet
The Director of Information and Public Relations Information, Federal Ministry of Finance, Mohammed Manga, despite the directive to the EMT and the ongoing discussions on the matter media reports claiming the government has stopped further deductions of cost of collection by revenue agencies were inaccurate and misleading.
“At no point during his remarks at the Nigeria Development Update (NDU) programme hosted by the World Bank did the Honourable Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, announce or imply any change to the existing policy on the cost of collection deductions.
“For the avoidance of doubt, there has been no policy change regarding the deduction of costs of collection at source by revenue-generating agencies. The current framework remains in effect.
“What is underway are ongoing policy discussions in line with the directives of His Excellency, President Bola Ahmed Tinubu, to review cost of collection structure. These discussions are part of broader efforts to enhance transparency, efficiency, and value-for-money in public financial management. However, no final decision has been made on this matter,” Manga said.
FAAC shares N2.103trn for September
Meanwhile, a total of about N116.149 billion was allocated as cost of collection and N835.005 billion for Transfers, Intervention and Refunds, as the FAAC distributed a total of N2.103 trillion to the three tiers of government as revenue allocation for September 2025.
This was disclosed by the FAAC in its communique issues at the end of its meeting in October.
The committee said the distributable allocations came from gross total revenue of N3.054 trillion realised in the September 2025.
The meeting chaired by the Accountant General of the Federation, Shamsudeen Ogunjimi said the gross revenue included Gross Statutory Revenue, which was lower by N710.134 billion than about N2.838 trillion received in the previous month. Other components included collection from the Value Added Tax (VAT) and Electronic Money Transfer Levy (EMTL).
From the distributable revenue, details showed the Federal Government received N711.314 billion, or 52.68 percent; States N727.170 billion, or 26.72 percent, and Local Government Councils N529.954 billion, or 20.60 percent, while the Oil Producing States got N134.956 billion as Derivation, or 13 percent of all mineral revenues.
Other details showed Value Added Tax (VAT) for the month of September 2025 increased by N150.011 billion to N872.630 billion from N722.619 billion distributed in the previous month.
In addition, the Federal Government received N581.672 billion from the total N1.239 trillion distributable statutory revenue, while the State Governments received N295.032 billion, and the Local Government Councils N227.457 billion with about N134.956 billion disbursed as 13 percent of mineral revenue to the relevant oil producing states.
In terms of the N812.593 billion distributable Value Added Tax (VAT) revenue, the Federal Government received N121.889 billion, the State Governments N406.297 billion and the Local Government Councils N284.408 billion.
A total sum of N7.753 billion was received by the Federal Government from the N51.684 billion Electronic Money Transfer Levy (EMTL), the State Governments N25.842 billion and the Local Government Councils N18.089 billion.
The communique revealed that Import Duty, Value Added Tax (VAT) and Electronic Money Transfer Levy (EMTL) increased significantly during the month, while Companies Income Tax (CIT) and CET Levies decreased considerably, as Petroleum Profit Tax (PPT) increased marginally compared to earnings from Oil and Gas Royalty and Excise Duty, which recorded marginal decreases.
