October 09, (THEWILL) — The World Bank has raised fresh concerns over Nigeria’s ballooning cost of revenue collection, warning that the country risks eroding its fiscal efficiency despite recent gains in non-oil revenue mobilisation and digital tax reforms.
According to the Bank’s latest Public Finance Review, Nigeria’s revenue collection expenses have grown faster than actual revenues in the past three years, widening the gap between what the government earns and what it retains for development spending.
The report notes that while Nigeria’s total federally collected revenue has risen steadily, aided by higher oil receipts, improved tax compliance, and inflation-adjusted nominal gains. The cost of collection retained by key agencies such as the Federal Inland Revenue Service (FIRS), Nigeria Customs Service (NCS), and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has surged to unprecedented levels.
Surging trend in collection costs
Nigeria’s cost of revenue collection has more than doubled in just two years, underscoring how administrative expenses continue to climb despite automation and digital reporting upgrades.
- 2022: N373.45 billion — about 2.1% of total revenue.
- 2023: N472.13 billion — up by 26.4% year-on-year, even as revenue grew by a smaller margin.
- 2024 (Jan–Nov): N924.73 billion — 2.51% of N36.95 trillion in gross collections, the highest in over a decade.
- H1 2025: N657.99 billion — a 41.9% rise from the same period in 2024.
The escalation reflects Nigeria’s cost-linked retention formula, which allows revenue-generating agencies to keep between 4% and 7% of what they collect. As revenues rise — driven partly by exchange rate depreciation, higher VAT inflows, and oil sector recovery — these agencies automatically retain more, inflating administrative deductions.
Most benefiting agencies:
The Federal Inland Revenue Service (FIRS) remains the biggest recipient, accounting for roughly 55% of all collection costs due to its broad tax coverage and the impact of inflation on nominal tax figures.
The Nigeria Customs Service (NCS) follows, with allocations tied to import duties and excise charges that have grown as a result of higher import valuations under the weaker naira.
Meanwhile, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has seen its collection cost surge by more than 40% year-on-year, reflecting firmer oil prices and increased remittances since the implementation of the Petroleum Industry Act (PIA) in 2021.
The World Bank warned that this cost structure is fiscally inefficient, particularly as debt servicing continues to consume a significant share of federal earnings.
The growing cost of collection means that for every N100 Nigeria earns, up to N2.50 is spent on administrative deductions — funds that could otherwise support infrastructure, education, or healthcare.
While rising collections are a sign of better tax mobilisation, the World Bank notes that without expenditure discipline, Nigeria’s fiscal balance will continue to lag behind real revenue gains.
It recommends that the government review the current formula, tying agency earnings to performance targets and operational efficiency rather than gross inflows. It also called for stronger oversight of expenditure claims and better integration of digital systems to reduce manual processing costs.
Ogochukwu Onwaeze
