The National Assembly and the imperative of reforming the funding of NRS, NCS and NUPRC
Nigeria’s current fiscal realities demand not only an aggressive drive to increase government revenues but also a deliberate effort to reduce the cost of generating those revenues.
Nigeria’s current fiscal realities demand not only an aggressive drive to increase government revenues but also a deliberate effort to reduce the cost of generating those revenues. In recent months, public discourse has focused largely on expanding the tax base, improving tax compliance, and diversifying government revenue sources.
These are undoubtedly important objectives. However, far less attention has been paid to a fundamental question of public financial management: how much should the government spend to collect its own revenue?
This question has become increasingly significant because Nigeria currently operates one of the most generous cost-of-collection regimes among developing and emerging economies. Three major revenue-generating agencies namely the Nigerian Revenue Service (NRS), formerly the Federal Inland Revenue Service (FIRS); the Nigerian Customs Service (NCS); and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) are statutorily permitted to retain fixed percentages of the revenues they collect to finance their operations.
The NRS retains 4% of non-oil revenues, the NUPRC retains 4% of royalties, rents and other revenues from the oil and gas sector, while the Nigerian Customs Service retains as much as 7% of customs duties and levies.
Although this arrangement was originally intended to provide stable funding for critical revenue institutions, it has evolved into a funding model that raises serious concerns regarding efficiency, accountability, and value for money.
Unlike most ministries, departments and agencies that receive annual appropriations based on demonstrated operational needs and are subjected to rigorous budget scrutiny by the National Assembly, these agencies enjoy an automatic funding mechanism tied directly to the volume of revenue collected.
As collections increase, their operating budgets also increase, regardless of whether their actual expenditure requirements have grown proportionately.
The implications of this funding structure are becoming increasingly difficult to ignore.
According to data published by Agora Policy, the three agencies retained a combined N78.30 billion as the cost of collection in January 2024 alone. Of this amount, the then Federal Inland Revenue Service accounted for N43.35 billion.
More strikingly, the combined cost of collection for these agencies exceeded the gross Federation Account Allocation Committee (FAAC) allocations received during the same month by four of Nigeria’s six geopolitical zones.
The Northeast received N56.60 billion, the North-Central N55.58 billion, the North-West N76.09 billion, and the South-East N47.75 billion. When the administrative cost of collecting revenue exceeds the monthly allocations received by entire geopolitical zones, it is evident that the issue deserves serious legislative and public attention.
The concern becomes even more compelling when Nigeria’s experience is compared with international practice. Revenue authorities across the world are expected to collect public revenue efficiently and at the lowest reasonable administrative cost. The United Kingdom’s HM Revenue and Customs operates at a cost-of-collection ratio of 0.51 per cent.
Across the thirty-eight member countries of the Organisation for Economic Co-operation and Development (OECD), the average cost is about 0.64 per cent. Revenue authorities within the Inter-American Center of Tax Administrations (CIAT), which covers much of Latin America, average approximately one per cent. Even Kenya, whose economy shares several structural characteristics with Nigeria, generally operates within a statutory range of one to two per cent.
Across developing and emerging economies, the average cost of collection is estimated at roughly one per cent. Nigeria’s current range of four to seven per cent therefore stands out as exceptionally high by global standards.
To be clear, the objective should not be to weaken the operational capacity of revenue-generating agencies. On the contrary, Nigeria requires strong, technologically advanced, and professionally managed institutions capable of maximising revenue collection, combating tax evasion, curbing smuggling, and improving compliance.
The issue is whether these objectives require a funding mechanism that automatically allocates between four and seven per cent of all revenues collected, irrespective of demonstrated operational needs or measurable efficiency gains.
There is an important distinction between rewarding performance and institutionalising inefficiency.
Digital tax filing systems, electronic payment platforms, integrated customs management systems, automated risk assessment tools, data analytics, and improved taxpayer databases are intended to make revenue administration more efficient while lowering operational costs over time.
If technological modernisation is achieving its intended purpose, then the cost of collection should gradually decline rather than remain permanently fixed at comparatively high levels.
At a time when governments at all levels continue to grapple with fiscal constraints and rising debt obligations, improving the efficiency of revenue collection offers one of the few reforms capable of increasing available public resources without imposing additional taxes on citizens or businesses.
Indeed, institutions entrusted with collecting public revenue should exemplify the highest standards of efficiency, transparency, and accountability.
This is where the National Assembly has a particularly important constitutional and institutional responsibility.
The National Assembly should therefore commence a comprehensive review of the statutory funding framework governing the Nigerian Revenue Service, the Nigerian Customs Service, and the Nigerian Upstream Petroleum Regulatory Commission.
Such a review should include detailed examination of the actual operational costs of these agencies, their expenditure patterns, personnel costs, capital investments, technological infrastructure, and comparative international benchmarks.
The outcome of such a review should be legislative reforms that gradually reduce the current retention ratios by about fifty per cent. A reduction from 4% to 2% for both the Nigerian Revenue Service and the Nigerian Upstream Petroleum Regulatory Commission, and from 7% to 3.5% for the Nigerian Customs Service, would still leave Nigeria above international averages while releasing substantial additional revenues to the Federation Account.
Such reforms would strike a more appropriate balance between ensuring adequate operational funding and protecting public finances.
