Nigeria’s federal government has scrapped the long-standing “cost-of-collection” policy that allowed revenue-generating agencies to retain a percentage of the funds they collected before remitting proceeds into the Federation Account.
The decision, approved by President Bola Tinubu and announced Thursday in Abuja by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, marks a major shift in fiscal management and transparency policy.
Edun made the announcement during the launch of the National Development Update, describing the reform as part of President Tinubu’s broader effort to enforce fiscal discipline, strengthen transparency, and ensure that every naira collected by federal agencies flows directly into the national treasury.
Register for Tekedia Mini-MBA edition 19 (Feb 9 – May 2, 2026): big discounts for early bird.
Tekedia AI in Business Masterclass opens registrations.
Join Tekedia Capital Syndicate and co-invest in great global startups.
Register for Tekedia AI Lab: From Technical Design to Deployment (next edition begins Jan 24 2026).
“Funds have flowed to the Federation Account, but the point is this — efficiency of that spending is critical,” Edun said. “We have been mandated by His Excellency, Mr President, to take a look at deductions — not just those for the cost of collection, but deductions generally. When you look at the gross figure, you see all kinds of deductions before you get to the net distributable figure which goes to the federal, state, and local governments. And I must inform you that even during the last FAAC allocation, most of those deductions have been removed once and for all.”
For years, top revenue agencies such as the Nigeria Revenue Service (formerly the Federal Inland Revenue Service), the Nigeria Customs Service (NCS), and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) have kept back portions of their collections to fund their operations. While the arrangement was meant to incentivize performance, it became a major source of controversy amid mounting allegations that many of the agencies routinely under-declared revenues, depriving the government of huge sums that should have gone into the Federation Account.
The practice also distorted the revenue-sharing process at the Federation Accounts Allocation Committee (FAAC), where subnational governments often complained about dwindling funds despite strong revenue inflows.
Until this new directive, the Nigeria Revenue Service received N254.8 billion as its cost-of-collection for 2024, with N43.8 billion projected for the first half of the year. The Nigeria Customs Service, which previously retained seven percent of total collections, was recently placed under a four percent Free on Board (FOB) levy on imports by order of the House of Representatives in August. The NUPRC, which regulates the upstream oil and gas sector, had been allowed to keep roughly four percent of royalties and rents collected from operators.
The government said the abolition of the practice would not only plug revenue leakages but also ensure that all funds are properly accounted for before being shared among the federal, state, and local governments. The measure, Edun noted, aligns with Section 162 of the 1999 Constitution, which mandates that all federally collected revenues must be remitted in full to the Federation Account.
Fiscal experts believe the reform could significantly raise government revenue and improve liquidity at all tiers of government, especially at a time when Nigeria is struggling to fund its budget amid rising debt and limited oil earnings. The removal of the deductions, they argue, could free up hundreds of billions of naira monthly that were previously withheld under opaque cost-of-collection arrangements.
However, the move has also sparked skepticism over the government’s own record of financial transparency. Critics say while agencies have often been accused of shortchanging the treasury, the government itself has not demonstrated much accountability in managing public funds. Many economists note that despite periodic increases in revenue, Nigeria’s fiscal position remains weak due to excessive borrowing, wasteful expenditure, and limited visibility into how funds are utilized.
Some insiders at the affected agencies have also expressed concern that the move could disrupt operations unless the government creates a clear funding framework. Without their cost-of-collection provisions, these agencies will now depend entirely on budgetary releases from the Ministry of Finance — a process often hampered by bureaucratic delays and political considerations.
Nonetheless, the policy underscores President Tinubu’s ongoing fiscal reform drive, which includes unifying exchange rates, removing petrol subsidies, and auditing government-owned enterprises for unremitted revenues. It reflects a growing determination by the administration to widen the fiscal space and restore confidence in the management of public resources.
Edun maintained that the policy is part of a long-term restructuring effort aimed at promoting transparency and rebuilding trust in public finance.
“Every naira collected by government belongs to the people of Nigeria,” he said. “We are restoring order and discipline to ensure that public revenue truly serves the people — through development, not deductions.”
Although the reform marks a turning point in Nigeria’s fiscal management, the challenge remains whether the government can translate increased remittances into real economic impact.