* Says their cost of collection exceptionally high by global standards
Ndubuisi Francis in Abuja
A financial economist and President of the Capital Market Academics of Nigeria (CMAN), Prof. Uche Uwaleke, has urged the National Assembly to undertake a comprehensive review of the statutory funding framework governing the Nigerian Revenue Service (NRS), Nigerian Customs Service (NCS), and Nigerian Upstream Petroleum Regulatory Commission (NUPRC) in the light of the country operating one of the most generous cost-of-collection regimes among developing and emerging economies.
Uwaleke said such a review should include a detailed examination of the actual operational costs of the agencies, their expenditure patterns, personnel costs, capital investments, technological infrastructure, and comparative international benchmarks.
His call was predicated on the fact that across developing and emerging economies, the average cost of collection is estimated at roughly one per cent, while Nigeria’s current range of between 4 and 7 per cent stands out as exceptionally high by global standards.
In an article titled, ‘The National Assembly and the Imperative of Reforming the Funding of NRS, NCS and NUPRC,’ which he made available to THISDAY, Uwalake observed that 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.
According to him, in recent months, public discourse had focused largely on expanding the tax base, improving tax compliance, and diversifying government revenue sources, adding that these are undoubtedly important objectives.
“However, far less attention has been paid to a fundamental question of public financial management: how much should 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,” he said.
The one-time commissioner for finance in Imo State and current Director, Institute of Capital Market Studies, Nasarawa State University, called for legislative reforms that gradually reduce the current retention ratios by about 50 per cent, adding that a reduction from 4 per cent to 2 per cent for both the NRS and the NUPRC and from 7 per cent to 3.5 per cent for the NCS, would still leave Nigeria above international averages while releasing substantial additional revenues to the Federation Account.
He argued that reforming their funding framework would strike a more appropriate balance between ensuring adequate operational funding and protecting public finances.
Uwaleke explained that the three major revenue-generating agencies are statutorily permitted to retain fixed percentages of the revenues they collect to finance their operations.
The NRS retains 4 per cent of non-oil revenues, the NUPRC retains 4 per cent of royalties, rents and other revenues from the oil and gas sector, while the NCS retains as much as 7 per cent of customs duties and levies.
According to him, 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.
He stated that unlike most ministries, departments and agencies (MDAs) 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.
He argued that as collections increase, their operating budgets also increase, regardless of whether their actual expenditure requirements have grown proportionately, adding that the implications of this funding structure are becoming increasingly difficult to ignore.
Citing a recent data published by Agora Policy, he noted that the three agencies retained a combined N78.30 billion as cost of collection in January 2024 alone, stressing that of this amount, the then Federal Inland Revenue Service (FIRS) 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 North-east 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,” he stated.
The United Kingdom’s HM Revenue and Customs operates at a cost-of-collection ratio of 0.51 per cent, he said, noting that across the 38- member countries of the Organisation for Economic Co-operation and Development (OECD), the average cost is about 0.64 per cent.
Uwaleke further provided insights into extant global practices, saying: “Revenue authorities within the Inter-American Centre 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 maximizing 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 institutionalizing inefficiency,” Uwaleke said.
He insisted that a funding model based solely on a percentage of collections creates weak incentives for cost control as higher revenue collections automatically translate into larger operating budgets.
According to him, it does not necessarily encourage expenditure discipline, prudent resource management or continuous productivity improvements, butt rather, it risks normalising administrative expansion without corresponding gains in efficiency.
“This concern is particularly relevant at a time when Nigeria has invested heavily in technology-driven reforms designed precisely to reduce the cost of tax administration and customs operations.
“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. Equally important is the opportunity cost of the existing arrangement.
“Every naira retained by revenue-generating agencies as collection costs is a naira unavailable for distribution through the Federation Account. It represents resources that could otherwise support investments in education, healthcare, security, infrastructure, agriculture, social protection, and other development priorities.
“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.
“The current arrangement also raises broader questions of equity within public financial management. Virtually every government institution is expected to justify its expenditure through the annual budget process.
“Their funding is determined by assessed needs, available resources and legislative appropriation. Revenue-collection agencies should not be exempt from the same principles of fiscal discipline merely because they collect rather than spend public resources. 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. As the custodian of the country’s power of appropriation and oversight, the legislature is uniquely positioned to review whether the current statutory retention ratios continue to serve the national interest.
“Legislative oversight is not intended to undermine executive agencies but to ensure that public resources are managed in accordance with the principles of economy, efficiency, effectiveness and accountability,”
he said.
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