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Cost of revenue collection hit N924.73b in 2024 amid calls for scrapping

By Joseph Chibueze, Abuja
05 January 2025   |   12:22 pm
The cost of revenue collection by Nigeria’s key revenue-collecting agencies—namely the Nigeria Customs Service (NCS), Federal Inland Revenue Service (FIRS), and Nigerian Upstream Petroleum Regulatory Commission (NUPRC)—has continued to rise despite improved technology that has made revenue collection easier and more efficient. The NCS receives 7 per cent of customs levies and duties, the FIRS…

The cost of revenue collection by Nigeria’s key revenue-collecting agencies—namely the Nigeria Customs Service (NCS), Federal Inland Revenue Service (FIRS), and Nigerian Upstream Petroleum Regulatory Commission (NUPRC)—has continued to rise despite improved technology that has made revenue collection easier and more efficient.

The NCS receives 7 per cent of customs levies and duties, the FIRS receives 4 per cent of non-oil taxes, while the NUPRC receives 4 per cent of royalties, signature bonuses, fines, and other oil and gas revenues.

The three agencies jointly received a total of N924.73 billion as part of the cost of revenue collection between January and November 2024.

Analysis of the monthly Federation Account Allocation Committee (FAAC) disbursements during the period showed that N924.73 billion disbursed to the agencies in 2024 represents 2.51 per cent of the total of N36.952 trillion collected by the agencies as of November 2024.

In 2023, the three agencies collectively generated a total sum of N22.344 trillion and received N472.13 billion, or 2.11 per cent, as the cost of collection.

Further analysis reveals that in 2020, the three agencies jointly received N269.02 billion as the cost of collection. This figure increased to N598.99 billion in 2021, dropped to N406.18 billion in 2022, and rose again in 2023 to N472.13 billion before hitting N924.73 billion in 2024. Although the large amount paid as the cost of collection in 2024 could be attributed to increased revenue generation, it does not reflect the expected impact of technology improvements on revenue collection.

Over time, the three agencies have collectively invested billions in technology to automate their operations, making it easier and cheaper for them to collect revenues. Unfortunately, there appear to be no visible changes.

For instance, in 2024, the FIRS budgeted N112.46 billion as capital expenditure, including initiatives like tax automation projects crucial for tax collection and administration. Similarly, the NCS budgeted N706.43 billion for capital expenditure, with a large portion devoted to technology upgrades.

Many are now questioning why these agencies, despite their technological investments, continue to retain a huge portion of revenue as the cost of collection.

Experts are also concerned that allowing these agencies to keep a large portion of the revenue they collect has distracted them from their core functions, as they focus primarily on revenue collection to increase their share while other agencies take up revenue collection as part of their functions.

The Presidential Fiscal Policy and Tax Reform Committee has hinted at reducing the number of agencies collecting revenue for the Federation to one and slashing the cost of collection to just one per cent or less.

Another issue of concern is that this cost of collection affects the revenue available to states and local governments.

A recent report by Agora Policy, a think-tank group, raised the alarm that these agencies are collecting more money than most states in the country.

According to the report, the cost of collection for January 2024 shows that the FIRS retained N43.35 billion, Customs N16.27 billion, and NUPRC N18.68 billion.

Agora noted that no state government received a gross allocation as high as what FIRS got as the cost of collection for the month.

The report also highlighted that the amount received by the three federal agencies in January 2024 was higher than the gross allocation for each of the four geopolitical zones. For instance, the total cost of collection received by FIRS, NUPRC, and NCS in January 2024 was N78.30 billion, while allocations to the zones were South-East (five states): N47.75 billion; North-Central (six states): N55.58 billion; North-East (six states): N56.60 billion; North-West (seven states): N76.09 billion; South-West (six states): N86.60 billion; and South-South (six states): N141.85 billion.

The report further stressed that giving agencies a portion of the revenue they collect creates a perverse incentive where they prioritise revenue collection over other critical responsibilities, often to the detriment of the larger economy.

For example, the NCS often measures its performance by the amount of money it generates, rarely discussing its important mandates, such as border protection and trade facilitation.

Experts believe that the significant sums available to these agencies predispose them to extravagance, opacity, and graft.

“That is why these agencies vote huge sums for things like new office buildings, cars, training, travel, and staff welfare,” said Mr. Benjamin Ogbeide, a former chairman of the FCT chapter of the Chartered Institute of Taxation of Nigeria (CITN).

He suggested that instead of allowing the agencies to keep revenue for collection costs, the federal government could introduce a performance bonus as an incentive when they surpass pre-agreed revenue targets.

It is also believed that leveraging available technologies could reduce the cost of revenue collection, improve efficiency and effectiveness in tax administration, and increase tax compliance and revenue collection.

 

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