The Federal Government has scrapped the long-standing system that allowed major revenue-generating agencies to retain a percentage of their collections as “cost of collection” before remitting funds to the Federation Account.
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Finance and Coordinating Minister of the Economy, Wale Edun, announced the reform on Thursday in Abuja during the presentation of the National Development Update.
According to Edun, President Bola Tinubu approved the measure to strengthen fiscal discipline, enhance transparency, and ensure that all government revenues are fully available for equitable sharing among the federal, state, and local governments.
Agencies affected by the policy include the Nigeria Revenue Service (formerly FIRS), Nigeria Customs Service (NCS), and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). These bodies had, over the years, retained portions of collected funds to finance their operations a practice critics say reduced the funds available for monthly allocation and weakened accountability.
“Mr President has directed that we take a close look at deductions, not only those tagged as cost of collection but all deductions generally,” Edun said. “In fact, during the most recent FAAC meeting, most of these deductions were removed once and for all.”
He explained that the change aligns with constitutional provisions requiring all revenues to be remitted into the Federation Account before distribution according to the approved sharing formula.
The minister described the move as part of a broader fiscal reform agenda aimed at improving efficiency in public finance, plugging leakages, and increasing the resources available to subnational governments.
Until now, the cost-of-collection arrangement served as the primary funding mechanism for revenue agencies. For instance, the NUPRC retained nearly four percent of royalties and rents collected from the oil sector, while the Nigeria Revenue Service received over ₦250 billion as its share of revenue collection for 2024. The Customs Service previously retained seven percent of total revenue before switching to a four percent Free on Board levy on imports.
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