Story Highlights
- The Federal Inland Revenue Service (FIRS), Nigeria Customs Service (NCS), and Nigerian Upstream Petroleum Regulatory Commission (NUPRC) saw a 131% increase in their cost of revenue collection in Q1 2024, totalling N214.29 billion.
- State finance commissioners have called for a review, citing the disproportionate impact on revenue distribution to the states.
- The Presidential Fiscal and Tax Reforms Committee has recommended reducing the cost of collection to 1% to align with global best practices.
The Federal Inland Revenue Service (FIRS), Nigeria Customs Service (NCS), and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) have experienced a 131% increase in their cost of revenue collection for the first quarter of 2024.
This analysis, based on the Federation Account Allocation Committee (FAAC) disbursements reports published by the National Bureau of Statistics (NBS), shows that these agencies collectively received N214.29 billion in Q1 2024, up from N92.85 billion in the same period the previous year.
The FIRS and NUPRC deduct about 4% of the cost of revenue collection, while the NCS receives 7%.
The cost of collection is usually deducted at the monthly FAAC meeting before the federally collected revenues are shared with the three tiers of government and other statutory recipients.
What each agency got
Nigerian Customs Service (NCS): The NCS witnessed a more than twofold increase in its cost of collection, soaring from N29.92 billion in Q1 2023 to N59.85 billion in Q1 2024.
This 100.18% rise suggests enhanced revenue collection activities, likely driven by improved border control measures or a surge in import and export activities.
Federal Inland Revenue Service (FIRS): The FIRS reported a significant 115.53% increase in its collection costs, rising from N46.60 billion in Q1 2023 to N100.40 billion in Q1 2024.
This substantial growth reflects expanded tax collection efforts, potentially due to better tax compliance measures and increased economic activities.
Nigerian Upstream Petroleum Regulatory Commission (NUPRC): The NUPRC saw the most dramatic rise, with its cost of collection increasing by 230.68%, from N16.34 billion in Q1 2023 to N54.05 billion in Q1 2024.
This surge indicates intensified regulatory activities in the upstream petroleum sector, possibly driven by new oil field discoveries and increased crude oil production.
Monthly Breakdown
- In January 2024, the total cost of collection for the three agencies was N78.30 billion, a 129.98% increase compared to January 2023’s N34.05 billion.
- February’s total collection cost was N66.46 billion this year, a 142.16% increase from N27.45 billion in February of the previous year. The agencies continued their efforts to improve revenue collection and compliance.
- March saw a total collection cost of N69.54 billion, marking a 121.81% increase from N31.35 billion in March 2023, highlighting ongoing enhancements in revenue collection mechanisms and regulatory oversight.
State Finance Commissioners Seek Reduction
The significant increase in the cost of revenue collection by the FIRS, NCS, and NUPRC in Q1 2024 has sparked calls for a review from state finance commissioners.
During the FAAC meeting in May 2024, state finance commissioners expressed strong opposition to the rising cost of revenue collection deductions, according to the minutes of the meeting seen by Nairametrics.
- At the meeting, Akinola Ojo, the Commissioner of Finance for Oyo State, raised concerns about the substantial payments made to Revenue Generating Agencies (RGAs). He recalled that FAAC had previously agreed on the need for a downward review of these payments. Ojo pointed out that the significant sums allocated to the RGAs as cost of collections were reducing the revenue available for distribution to the various tiers of government. He emphasized the necessity of revisiting the issue and setting a timeline for its resolution.
- Isaac Kamalu, the Commissioner of Finance for Rivers State, commented on the matter, clarifying that certain deductions, including payments for the 13% derivation and cost of collections, were mandated by law and must be complied with in revenue distribution. However, he concurred with the need to review the presentation of these items in the report for better clarity and understanding among members.
- Dr. Nathaniel Urama, the Commissioner of Finance for Enugu State, supported Ojo’s position. He argued that reviewing the cost of collections would not equate to disregarding the laws but would require amendments to the existing legislation that backs these deductions. Urama noted that the adoption of technology had made revenue collection easier for the agencies, thereby justifying the need for a review.
- Dr. Leonard C. Uguru, the Commissioner of Finance for Ebonyi State, also backed the call for a review. He highlighted that states were contributing more than 40% to the collection of taxes and fees for the government, yet they were not benefiting proportionately from the cost of collections.
- Dr. Chris A. Akomas, the Federal Commissioner and Chairman of the Indices and Disbursements Committee at the Revenue Mobilization Allocation and Fiscal Commission (RMAFC), recalled that the Post-Mortem Sub-committee (PMSC) had already been tasked by FAAC to examine the issue of cost of collections and provide recommendations. He disclosed that the Sub-committee was actively working on the matter and urged members to be patient as the assignment was concluded.
- Yakubu Adamu, the Commissioner of Finance for Bauchi State, informed the meeting that a Presidential Committee was currently addressing fiscal issues, including the payment for cost of collections on taxes and fees. He suggested that FAAC should adopt the Committee’s findings to guide the resolution of disputes surrounding the cost of collections.
What you should know
According to a recent Agora Policy report, the issue with the cost-of-collection arrangement is not just the agencies collecting more revenue, but the disproportionate allocation at the expense of states facing numerous challenges.
The report read: “The agencies are getting more allocations at the expense of others, including states and zones that have a high number of citizens to cater for and a slew of challenges to tackle.”
During a stakeholder consultation with public policy analysts and journalists in Abuja, the Presidential Fiscal and Tax Reforms Committee, led by Taiwo Oyedele, recommended reducing the cost of revenue collection to 1%, aligning with global best practices where even high-revenue countries like South Africa spend less than 1%.
Oyedele noted that the current cost of revenue collection in the country ranges between 4% and 35%, a situation he said was totally unacceptable.
The proposed reforms also include renaming the FIRS to the Nigeria Revenue Service (NRS) to reflect its role in collecting revenue for the entire federation.
