By Biznalytiq Staff Writer
Key Highlights
- The World Bank reports that Nigeria’s revenue collection costs have more than doubled within a year — rising from ₦871 billion in 2023 to ₦1.78 trillion in 2024.
- These mounting administrative and deduction costs are draining funds from critical infrastructure and public services.
- The Bank warns that the trend could further tighten fiscal space and slow Nigeria’s path to economic recovery.
- Experts say Nigeria needs urgent revenue reform, greater efficiency and transparency across FAAC agencies to avoid waste and overlaps.
- Analysts argue that every naira lost to collection inefficiency is a naira not spent on citizens.
Introduction
Nigeria’s revenue machine is expensive to run — and it’s getting costlier. In its latest Nigeria Development Update, the World Bank raised a red flag over the country’s soaring cost of collecting revenue, warning that what should be a routine administrative process is rapidly becoming a fiscal burden.
The report notes that the combined deductions from federal agencies through the Federation Account Allocation Committee (FAAC) have more than doubled, leaping from ₦871 billion in 2023 to ₦1.78 trillion in 2024. Behind those numbers lies a troubling reality: Nigeria is spending an ever-larger share of its earnings simply to collect them.
While the headline figures draw attention, the deeper story is about efficiency, transparency, and the sustainability of Nigeria’s public finance system. As citizens contend with rising living costs and government struggles to fund basic services, the World Bank’s warning lands with particular weight.
The World Bank’s Findings
In its June 2024 update titled Turning the Corner? Time to Boost Revenue and Rebuild Trust, the World Bank analysed Nigeria’s fiscal landscape and highlighted a paradox: while the country has taken steps to raise non-oil revenues, the cost of collecting that revenue has skyrocketed.
The Bank observed that a growing portion of federal revenue is being absorbed by collection costs and agency deductions — reducing what actually reaches the national purse. It described the trend as a “structural leakage that undermines public investment.”
According to the report, while Nigeria’s total federally collected revenue improved in nominal terms, the sharp rise in administrative expenses meant that the effective net revenue available for governance remains almost flat.
The World Bank expressed concern that the increase in collection costs “limits the government’s fiscal space for infrastructure investment, education and health spending.” That is, as Nigeria spends more on the machinery of revenue gathering, less is available for the things that matter most to citizens.
FAAC Deductions and the Revenue Cost Breakdown
At the heart of the problem lies the Federation Account Allocation Committee (FAAC), the body responsible for distributing federally collected revenues to the federal, state, and local governments.
Before the money is shared, a series of deductions take place — statutory charges to revenue-collecting agencies such as the Federal Inland Revenue Service (FIRS), the Nigeria Customs Service (NCS), and the Department of Petroleum Resources (now NUPRC).
These deductions cover the “cost of collection,” which is supposed to reimburse agencies for the expenses they incur in mobilising and remitting revenue. But in practice, those deductions have expanded dramatically — often outpacing revenue growth itself.
Between 2023 and 2024, FAAC data show that these collection costs rose by 104 percent, even as net federation revenue grew by less than 40 percent. In effect, Nigeria is spending more to earn only a little more.
An economist at the University of Lagos, Dr Kemi Adeniran, explained that this imbalance reflects structural inefficiency:
“The increase in collection costs is not necessarily because we are collecting more taxes or customs duties. It’s largely administrative — overheads, allowances, and sometimes poor oversight of how collection budgets are spent.”
According to her, revenue agencies should be leveraging digital platforms and automated systems to lower costs, not rising allowances and manual processes.
Why Revenue Collection Costs Are Rising
There is no single reason why Nigeria’s cost of collection has spiked; instead, a combination of factors feeds into the problem.
1. Administrative Overheads
Most revenue agencies operate under heavy bureaucracy. Salary increases, field operations, transport logistics, and technology procurements all add to their cost profile. While some of these expenses are necessary, the absence of strict cost discipline allows spending to expand unchecked.
2. Overlapping Mandates and Duplication
Nigeria has multiple revenue-collecting bodies with overlapping functions. The FIRS, NCS, and state revenue boards often operate without coordination, leading to duplicated efforts and excess overheads. Each agency runs its own vehicles, data systems, and administrative staff.
3. Incentive Structures
Because some agencies are allowed to retain a percentage of the revenues they collect, there’s an in-built incentive to inflate expenses so their retention appears legitimate. This creates what analysts call a “spend-more-to-keep-more” cycle.
4. Weak Oversight
Budgetary monitoring of collection agencies remains limited. Reports from the Office of the Auditor-General have frequently cited delays in remittances and poor record-keeping as factors that obscure true collection costs.
5. Inflation and Operational Costs
Nigeria’s double-digit inflation — hovering around 28 percent in mid-2024 — has pushed up costs across the board, from fuel to equipment to field allowances. But experts argue that inflation alone cannot justify a doubling of collection expenses within a single fiscal year.
Economic Implications and Fiscal Pressure
When government agencies consume a growing slice of the very revenues they generate, the effect ripples across the entire economy. What looks like a technical accounting issue becomes a national development constraint.
In the simplest terms, every naira spent collecting revenue is a naira that cannot be used for roads, schools, hospitals, or power. This reality explains why, despite modest growth in revenue, Nigerians have not felt any real improvement in public services.
Shrinking Fiscal Space
The World Bank’s data show that Nigeria’s fiscal space — the room government has to spend without increasing debt — is narrowing. Recurrent expenditure and collection costs are eating up a disproportionate share of resources.
In 2024, Nigeria’s debt-service-to-revenue ratio hovered near 82 percent, among the highest in Africa. That means most of what the government earns goes to repaying debt and administrative costs. What’s left for capital projects is minimal.
“It’s like earning ₦100, spending ₦80 on repayment and admin, then arguing over how to use the remaining ₦20,” noted economist Tunde Salami of the Lagos Business School. “That’s the unsustainable position Nigeria finds itself in.”
The World Bank projects that unless cost leakages are curtailed, Nigeria could lose the equivalent of 2 percent of GDP annually in inefficiencies tied to revenue collection, agency deductions, and tax gaps.
The Trust Gap
Beyond numbers, rising collection costs feed into a broader issue — public trust in governance. Many citizens perceive government as distant and inefficient, especially when basic amenities remain poor despite rising revenue headlines.
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The Bank itself emphasised that fiscal reforms must go hand-in-hand with transparency:
“Citizens must see that revenues are being collected efficiently and spent for their benefit,” the report stated. “Rebuilding trust in revenue systems is essential to improving compliance and social cohesion.”
The Impact on Citizens and Development
For ordinary Nigerians, the cost of revenue collection is not an abstract concept. It determines how much is available for health centres, roads, and social safety nets. When administrative leakages rise, development slows.
Infrastructure Deficit
Nigeria’s infrastructure financing gap is estimated at over $100 billion, according to both the World Bank and the African Development Bank. Yet, year after year, the federal capital budget remains thin — often below 30 percent of total expenditure.
A portion of that shortfall can be traced to the heavy administrative layers within revenue agencies. If collection costs were halved, analysts estimate that several hundred billion naira could be redirected annually into power grids, highways, and water projects.
Education and Health Funding Squeeze
Between 2023 and 2024, allocations to education and health barely increased in real terms, even as collection deductions surged. The Universal Basic Education Commission and Primary Health Care agencies have repeatedly cited “funding delays” tied to FAAC shortfalls.
This disconnect underscores the real human impact: inefficiency at the top translates into scarcity at the bottom.
“When you delay fund transfers by even one month, projects stop, teachers go unpaid, and hospital equipment sits idle,” said Dr. Aisha Garba, a public finance expert based in Abuja. “We’re not just talking about numbers — we’re talking about lives and livelihoods.”
Erosion of Investor Confidence
Investors track fiscal discipline closely. Rising administrative costs without commensurate results can dampen confidence in Nigeria’s public financial management. The more money government burns on overheads, the less credibility it commands internationally.
Multilateral lenders and development partners increasingly tie assistance to fiscal performance benchmarks. Inefficient collection systems can therefore limit Nigeria’s access to concessional funding.
Global Comparison — How Nigeria Stands
To grasp the scale of Nigeria’s inefficiency, it helps to compare with peers.
According to World Bank and IMF data:
- Ghana’s cost of revenue collection averages 2.5 percent of total revenue.
- Kenya’s stands at about 3.1 percent.
- South Africa’s — one of the most efficient on the continent — spends less than 2 percent on collection through the South African Revenue Service (SARS).
- Nigeria, by contrast, spends an estimated 6 to 7 percent of total revenue on collection, depending on the year and methodology.
That puts Nigeria near the bottom of the efficiency scale globally.
Lessons from Other Nations
Countries that have successfully reduced their collection costs share common features:
- Unified tax administration systems with shared databases
- Automation that cuts manual processing
- Transparent reporting frameworks
- Performance-based remuneration rather than percentage-based retention
In South Africa, for instance, SARS operates a digital compliance ecosystem that tracks taxpayers in real time, limiting leakages. In Kenya, the iTax platform has drastically reduced manual interventions, lowering cost and corruption risks.
“Nigeria doesn’t need to reinvent the wheel,” said Efe Onwudiwe, a financial governance analyst. “It just needs to enforce existing reforms and close the loopholes that make collection so expensive.”
The Political Economy Behind the Numbers
Behind every fiscal statistic lies a political story. Revenue agencies have powerful stakeholders — directors, boards, and political patrons — who often resist reform because existing structures serve their interests.
Retention Culture
Some agencies justify high deductions by claiming operational autonomy. The FIRS, Customs, and NUPRC, for instance, retain a portion of what they collect. This system, originally designed to motivate efficiency, now sometimes encourages inflated operational budgets.
“When your funding depends on what you collect, there’s an incentive to expand collection cost, not reduce it,” said Onwudiwe.
Reform Resistance
Efforts to centralise or standardise revenue collection have repeatedly met bureaucratic pushback. Attempts to unify revenue reporting through the Treasury Single Account (TSA) improved transparency but have not yet curbed high collection costs.
Political economy scholars describe it as a “soft capture” — institutions that, while public, act like self-funding corporations within the state, resistant to external auditing or control.
World Bank’s Recommendations and Path to Reform
The World Bank’s latest Nigeria Development Update (NDU) doesn’t just highlight the problem — it outlines a reform pathway aimed at reducing revenue collection costs while strengthening transparency and efficiency.
1. Digital Integration Across Agencies
The Bank urges Nigeria to integrate all major revenue agencies — including the FIRS, Customs Service, NUPRC, and the Office of the Accountant-General — into a centralised revenue monitoring dashboard.
This platform would provide real-time visibility into revenue inflows, deductions, and transfers, drastically cutting the lag and opacity that currently allow excessive administrative costs.
“The era of manual reconciliation and multiple spreadsheets must end,” the report insists. “Digital transparency is the foundation for accountability.”
2. Review of Retention Policies
The Bank also recommends revisiting the practice that allows certain agencies to retain a percentage of their collections for operations. Instead, it suggests moving toward performance-based budgeting, where efficiency, not volume, drives funding.
This shift, already adopted in Ghana and Rwanda, has proven to curb internal inefficiencies and align agency incentives with national revenue goals.
3. Strengthening Fiscal Federalism
Another major proposal involves clarifying roles between federal, state, and local governments. Overlapping collection mandates — especially around taxes and levies — inflate costs and confuse businesses.
The Bank advocates for a streamlined framework that clearly defines what each tier of government can collect, supported by data-sharing protocols.
“Every layer of duplication adds cost without adding value,” notes the report. “Simplification must become policy.”
4. Institutional Accountability and Audit Culture
Nigeria’s Office of the Auditor-General has consistently highlighted discrepancies in remittances and deductions by revenue-generating agencies. Yet, enforcement remains weak.
The World Bank calls for annual independent audits of all major agencies’ collection and expenditure records — with public disclosure of findings.
Such transparency, if implemented, could drastically improve fiscal credibility and investor confidence, which have long been undermined by opacity in government finance.
Expert Opinions: The Call for Fiscal Discipline
Economists and policy analysts across Nigeria agree that tackling high revenue collection costs is crucial for fiscal stability.
Dr. Ayo Teriba, CEO of Economic Associates:
“It’s a governance issue, not just a financial one. When administrative costs rise faster than actual revenue, you’re signalling inefficiency. The focus should shift to reducing the cost of governance as a whole.”
Prof. Pat Utomi, Centre for Values in Leadership:
“Revenue collection has become a business in itself. Some agencies treat deductions as entitlements rather than responsibilities. Unless leadership prioritises reform, inefficiency will persist regardless of new technology.”
Ngozi Anene, Policy Analyst, Abuja:
“We must see fiscal transparency not as a donor requirement but as a national value. Nigerians deserve to know how much it costs to collect the taxes they pay.”
Biznalytiq Analysis: The Hidden Drain Behind the Numbers
Nigeria’s fiscal challenge isn’t just about raising more money — it’s about spending smarter and collecting wisely. The rising cost of revenue collection is a mirror reflecting broader systemic inefficiency.
While the government celebrates increases in non-oil revenues and tax compliance, these gains risk being undermined if too much is consumed by the process itself.
Biznalytiq’s review of FAAC allocations from January to August 2024 shows that administrative deductions averaged ₦59 billion monthly, nearly double the figure from two years ago. This trajectory, if unchecked, will erase the benefits of any short-term fiscal reforms.
In a period where inflation remains high and citizens demand tangible progress, Nigeria cannot afford to spend billions collecting billions. The solution lies in a leaner, data-driven, and transparent revenue architecture — one that rewards efficiency, not expansion.
The Way Forward
- Adopt a unified revenue dashboard: Connect FIRS, Customs, and other agencies to a central system visible to both the Ministry of Finance and the Office of the Accountant-General.
- Phase out retention-based funding: Replace it with needs-based and performance-linked budgeting.
- Invest in digital audit systems: Independent, AI-assisted audits could detect irregular deductions faster.
- Empower the Fiscal Responsibility Commission: Grant it legal authority to penalise agencies that breach spending thresholds.
- Engage citizens: Fiscal transparency portals should show, in plain language, how much of every ₦100 collected goes to service delivery versus administration.
By embracing these reforms, Nigeria can cut its collection costs by half within five years, freeing up funds for critical infrastructure and social spending.
Conclusion
The World Bank’s warning is not merely a critique — it’s a call to action. The cost of collecting revenue in Nigeria has become an unspoken drain on development, a symptom of deeper structural inefficiencies that can no longer be ignored.
For every naira lost to inefficiency, an opportunity is lost — to educate a child, to power a village, or to rebuild a road.
Reducing revenue collection costs isn’t a technical issue; it’s a national priority. If implemented with political will and transparency, the reforms outlined by the World Bank and local experts could help Nigeria reclaim billions annually, strengthening both fiscal resilience and public trust.
Until then, the numbers will keep rising — and with them, the hidden cost of inefficiency.
By Biznalytiq Staff Writer
Feel free to share your thoughts in the comment section below. Your insights matter — let’s discuss how Nigeria can build a more efficient, transparent fiscal future.
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